U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under
Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
June 30, 2006
Commission file number
000-03718
Nevada 37-1454128
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock ($0.01
par value per share
Title of each Class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.01 Par Value Over-the-Counter Bulletin Board
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Outstanding as of September 28, 2006
8,930,766 Shares (662 shareholders)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) [X] Yes [ ] No ; (2) [X] yes [ ] No.
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form , and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The issuer's revenues for the year ended June 30, 2006 were $7,085,125.
The aggregate market value of the stock held by non-affiliates of the registrant is approximately $11,483,000, calculated using a price of $2.60 per share on September 27, 2006.
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-KSB
YEAR ENDED JUNE 30, 2006
PART I
Item 1 Description of Business 3
Item 2 Description of Properties 6
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 7
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 7
Item 6 Management's Discussion and Analysis or Plan of Operation 9
Item 7 Financial Statements 18
Item 8 Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 18
Item 8A Controls and Procedures 18
Item 8B Other Information 18
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons 19
Item 10 Executive Compensation 21
Item 11 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 24
Item 12 Certain Relationships and Related Transactions 25
Item 13 Exhibits 26
Item 14 Principal Accountant Fees and Services 27
Signatures 28
Report of Independent Registered Public Accounting Firm 29
Consolidated Balance Sheets as of June 30, 2006 and
June 30, 2005 30
Consolidated Statements of Operations 31
Consolidated Statements of Stockholders' Equity (Deficit) 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statement June 30, 2006
and June 30, 2005 34
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Exhibit 31 Certifications of the Principal Executive Officer and
Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32 Certifications pursuant to 18 U.S.C. Sec. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
PART I
The Company was incorporated in the State of Delaware on December 8, 1964 as Infotec, Inc. From June 20, 1999 to approximately June 12, 2001, it was known as Amerinet Group.com, Inc. In 2001, the name was changed from Amerinet Group.com to Fields Technologies, Inc. On June 13, 2001, the Company entered into a "Reorganization Agreement" with Randall K. Fields and Riverview Financial Corporation whereby it acquired substantially all of the outstanding stock of Park City Group, Inc., a Delaware corporation, which became a 98.67% owned subsidiary. Operations are conducted through this subsidiary which was incorporated in the State of Delaware in May 1990. The Company develops and licenses its software applications identified as "Fresh Market Manager", "Supply Chain Profit Link", and "ActionManager(TM)". The Company also provides implementation and profit optimization consulting services for its application products.
On August 7, 2002, Fields Technologies, Inc., (OTCBB:FLDT) changed its name from Fields Technologies, Inc., to Park City Group, Inc., and reincorporated in Nevada. Therefore, both the parent-holding company (Nevada) and its operating subsidiary (Delaware) are named Park City Group, Inc. Park City Group, Inc. (Nevada) has no other business operations other than in connection with its subsidiary. In this Registration Statement when the terms "we", "Company" or "Park City Group" are used, it is referring to the Park City Group, Inc., a Delaware corporation, as well as to Fields Technologies, Inc., the Delaware corporation, which was reincorporated in Nevada under the name of the Park City Group, Inc. The stock trades under the symbol PKCY.
On the 11th day of August 2006, the company effected a 1 for 50 reverse stock split. All trading price information set forth gives effect to such reverse stock split.
The principal executive offices are located at 333 Main Street, P.O. Box 5000, Park City, Utah 84060. The telephone number is (435) 649-2221. The website address is http://www.parkcitygroup.com.
Fresh Market Manager helps identify true cost of goods and provides accurate and actionable profitability data on a corporate, regional, store-by-store, and/or item-by-item basis. Fresh Market Manager also can produce hour-by-hour forecasts, production plans, perpetual inventory, and places/receives orders. Fresh Market Manager automates the majority of the planning, forecasting, ordering, and administrative functions associated with fresh merchandise or products.
ActionManager applications provide an automated method for managers to plan, schedule, and administer many of the administrative tasks including new hire paperwork and time and attendance. In addition to automating most administrative processes, ActionManager provides the local manager with a "dashboard" view of the business. ActionManager also has extensive reporting capabilities for corporate, field, and store-level management to enable improved decision support.
To date, Park City Group's primary marketing objectives have been to increase awareness of Park City Group's technology solutions and generate sales leads. To this end, Park City Group attends industry trade shows, conducts direct marketing programs, publishes industry trade articles and white papers, participates in interviews, and selectively advertises in industry publications.
Park City Group's product development strategy is focused on creating common technology elements that can be leveraged in applications across its core markets. The Company's software architecture is based on open platforms and is modular, thereby allowing it to be phased into a customer's operations. In order to remain competitive, Park City Group is currently designing, coding and testing a number of new products and developing expanded functionality of its current products.
Company policy is to seek patent protection for all developments, inventions and improvements that are patentable and have potential value to the Company and to protect its trade secrets other confidential and proprietary information. The Company intends to vigorously defend its intellectual property rights to the extent its resources permit.
Future success may depend upon the strength of the Company's intellectual property. Although management believes that the scope of patents/patent applications are sufficiently broad to prevent competitors from introducing devices of similar novelty and design to compete with the Company's current products and that such patents and patent applications are or will be valid and enforceable, there are no assurances that if such patents are challenged, this belief will prove correct. The Company has, however, successfully defended one of these patents in two separate instances and as such, has some level of confidence in the Company's ability to maintain its patents. In addition, patent applications filed in foreign countries and patents granted in such countries are subject to laws, rules and procedures, which differ from those in the U.S. Patent protection in such countries may be different from patent protection provided by U.S. Laws and may not be as favorable.
The Company is not aware of any patent infringement claims against it; however, there are no assurances that litigation to enforce patents issued to the Company, to protect proprietary information, or to defend against the Company's
alleged infringement of the rights of others will not occur. Should any such litigation occur, the Company may incur significant litigation costs, the Company's resources may be diverted from other planned activities, and result in a materially adverse effect on the Company's operations and financial condition.
The Company relies on a combination of patent, copyright, trademark, and other laws to protect its proprietary rights. There are no assurances that the Company's attempted compliance with patent, copyrights, trademark or other laws will adequately protect its proprietary rights or that there will be adequate remedies for any breach of our trade secrets. In addition, should the Company fail to adequately comply with laws pertaining to its proprietary protection, the Company may incur additional regulatory compliance costs.
The principal place of business operations is 333 Main Street, Park City, Utah. The Company leases approximately 9,500 square feet at this location, consisting primarily of office and storage areas. The Company has currently given notice to landlord its anticipation to vacate on or about November 1, 2006.
The company has entered into a lease at 3160 Pinebrook Drive, Park City, UT, 84098 and anticipates relocating to the new facility on or about November 1, 2006, possession to be determined by timing of build-out of the leasehold and land improvements. The Company will lease approximately 10,000 square feet for a period of 3 years, with an option to renew for additional 3 year increments.
The payment terms are based on a step-rate lease and are as follows:
Period Annualized Monthly ------ ---------- ------- Year 1 $ 137,250.00 $ 11,437.50 Year 2 $ 141,367.50 $ 11,780.63 Year 3 $ 145,608.53 $ 12,134.04 |
The Company has filed a lawsuit against Workbrain Corporation titled Park City Group, Inc. vs. Workbrain Corporation Case No. 2:06 cv 289, which is pending in the Federal District Court for the District of Utah. The Company claims that Workbrain Corporation is infringing upon its patent # 5,111,391. The Company will vigorously pursue this matter.
On July 7, 2006 notice was provided by Park City Group, Inc. describing it plans to take certain corporate action pursuant to the written consent of our Board of Directors and the holders of a majority of our outstanding voting securities ("Majority Stockholders"). The action was to (i) amend our Articles of Incorporation to decrease the number of shares of common stock which we are authorized to issue from 500,000,000 to 50,000,000 (the "Decreased Capital Proposal"), and (ii) amend our Articles of Incorporation to effect a one-for-fifty reverse split of our issued and outstanding shares of common stock ("Reverse Split Proposal").
On June 26, 2006, our Board of Directors unanimously approved the Decreased Capital Proposal and the Reverse Split Proposal and the Majority Stockholders have consented in writing to each of such proposals. The Majority Stockholders beneficially own 4,538,862 shares of our common stock representing approximately 50.8% of the votes that could be cast by the holders of our outstanding voting shares as of the Record Date.
PART II
Fiscal Year 2005 Low High ---------------- --- ---- September 30, 2004 $2.50 $4.00 December 31, 2004 $2.00 $4.50 March 31, 2005 $2.00 $4.00 June 30, 2005 $1.00 $2.50 Fiscal Year 2006 ---------------- September 30, 2005 $1.50 $3.00 December 31, 2005 $2.00 $5.50 March 31, 2006 $2.00 $4.00 June 30, 2006 $2.00 $5.50 |
Equity Compensation Plan Information
Number of securities
remaining available for
future issuance under
Number of securities to Weighted-average equity compensation
be issued upon exercise exercise price of plans (excluding
of outstanding options, outstanding options, securities reflected in
warrants and rights warrants and rights column (a))
Plan category (a) (b) (c)
---------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders 0 0 0
---------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 93,288 $2.93 66,712
---------------------------------------------------------------------------------------------------------
Total 93,288 $2.93 66,712
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The Company has several different Equity Compensation Plans in effect at this
time. These include the following
o In August 2003 the Company authorized 40,000 options for
distribution to the employees. These options had a strike price of
$2.50
o In August 2003 the Company authorized 40,000 options for
distribution to the senior management. These options had a strike
price of $1.50
o In September of 2005 the Company authorized to pay Senior Management
3 options for every share purchased at $3.50 for one year. Starting
October of 2006 Senior Management will get 2 options for every share
purchased from the Company at market price or $3.50 which ever is
higher.
o In July 2005 3,115 shares were issued per anti-dilution agreement
with the CEO. This dilution reduces the effective price per share of
the CEO's cash investments to $3.05.
o In August 2005 2,688 shares were issued to an employee in lieu of
cash compensation of $5,376.
o In November 2005, 14,667 shares of common stock were issued to
management in lieu of cash compensation of $30,017.
o In November 2005, 10,500 shares of common stock were issued to board
member is lieu of cash compensation of $22,500.
o In January 2006, 4,500 shares of common stock ($3.50 per share) were
issued as a fee for extension of a note payable.
o In February 2006, 58,571 shares of common stock ($2.00 per share)
were issued due to exercise of warrants.
o In March 2006, 2,500 shares of common stock were issued to board
members in lieu of cash compensation of $7,500.
o In March 2006, 18,097 shares of common stock were issued to
management in lieu of cash compensation of $58,333.
o In March 2006, 1,324,693 shares of common stock ($2.71 per share)
were issued for conversion of a note payable and accrued interest of
$3,473,606.
o In April 2006, 1,667 shares of common stock were issued to board
members in lieu of cash compensation of $5,000.
o In April 2006, 3,889 shares of common stock were issued to
management in lieu of cash compensation.
o In April 2006, 10,000 shares of common stock ($2.50 per share) were
issued to a member of management for the vested portion of a signing
bonus.
o In June 2006, 1,818,182 shares of common stock ($2.75) were issued
in connection with a Placement Agreement.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition. The terms "Company", "we", "our"
or "us" are used in this discussion to refer to Park City Group, Inc. (formerly Fields Technologies, Inc.) along with Park City Group, Inc.'s wholly owned subsidiary, Fresh Market Manager, LLC, on a consolidated basis, except where the context clearly indicates otherwise.
Through June 30, 2006 the Company has accumulated aggregate consolidated losses totaling $19,207,606 which includes net income of $1,358,597 and a net loss of $3,408,037 for the years ended June 30, 2006, and 2005, respectively.
Deferred revenue was $648,686 and $883,425 at June 30, 2006 and 2005, respectively, a decrease of 27%.
Total research and development expenditures were $292,191 and $1,019,411 for the years ended June 30, 2006 and 2005, respectively; a 71% decrease. This comparative decrease is attributable to the capitalization of software costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 86. The Company capitalized $613,717 in labor and overhead costs for the Fiscal Year Ended, June 30, 2006 as a result of 1 new product development and two significant enhancements that reached feasibility during 2006. The Company anticipates this new product and 2 significant enhancements will be available for sale in the later part of FYE 2007
Sales and marketing expenses were $1,375,794 and $1,337,318 for 2006 and 2005, respectively, an increase of 3%. During the current fiscal year the Company continued to develop several strategic sales channels that are headed up by commissioned alliance partners.
General and administrative expenses were $1,518,092 and $2,055,940 for 2006 and 2005, respectively, a 26% decrease. This decrease was primarily from one time charges in the 2005. These charges include a bad debt write off of $307,500 from one customer for non payment and settlement of a legal issue that arose from the reverse acquisition with Amerinet.com and has been pending since 2002.
Interest expense was $884,404 and $1,178,454 for 2006 and 2005, respectively, a 25% decrease. This decrease was primarily attributed to the retirement of a note payable with proceeds from operations and the conversion of the note payable with Riverview Financial into common stock . See Note 12 and 16.
In accordance with generally accepted accounting principles (GAAP), earnings per share basic and diluted for the year ended, June 30, 2006 was $ .23 and $ .22 per share, respectively. NOTE: The Company believes providing some additional information on a non GAAP basis for earnings per share (EPS) that has significant benefit to the reader of this Form 10KSB. These GAAP results reflect a weighted average of 6 million shares for the fiscal year. As previously reported, Park City Group raised $5 million in a private placement of shares during the fourth quarter, and this placement had a significant impact on the
weighted average share count for the year. At year end, Park City Group had 8.9 million shares outstanding. Excluding the effects a weighted average share count, Park City Group's earnings per share for the fiscal year 2006 was $0.16. Park City Group believes utilizing the full year share count provides a more meaningful view into the company's profitability at the per share level. This non-GAAP EPS amount is less than the GAAP basis EPS by $.07 and $.06 on a weighted average of shares, basic and dilutive, respectively.
During the year ended June 30, 2006 the operations of the Company provided $725,134 of cash, compared to operations using $794,318 of cash in 2005.
The Company continues to focus on developing strategic sales channels and aligning itself with partners who provide high margin, low operating costs, and developing symbiotic relationships that enhance the core focus of Park City Group. The primary focus has been and continues to be Large Grocery Chains, Medium Grocery Chains, Large C-Store Chains, Medium C-Store Chain, Specialty Retailers through Alliance Partners, Financial Services and Call Center operations, and Perishable and Non Perishable Product Manufacturers.
In prior years, the Company has financed its operations through operating revenues, loans from directors, officers and stockholders, loans from the CEO and majority shareholder, and private placements of equity securities. The Company, through a private placement of equity reduced liabilities from $8,772,879 to $3,344,826, 2005 to 2006, respectively. In addition, the loans between said Company and its directors and CEO have been converted to stock. The Company has secured a $1.9 million revolving line of credit that in combination with a strict focus on cost control and increased revenue anticipation will provide a level of working capital necessary to satisfy its operating needs for fiscal 2007.
We have incurred losses in the past and there can be no assurance that we will operate at a profit in the future. Continued losses could result in a reduction of operations and could have a detrimental effect on the long-term capital appreciation of our stock.
Our marketing strategy emphasizes sales activities for the Fresh Market Manager, ActionManager(TM), and Supply Chain Profit Link applications to Supermarkets, Convenience Stores, Specialty Retail, Financial Services, and Food Manufacturers. If this marketing strategy fails, revenues and operations will be negatively affected. A reduction in revenues will result in increases in operational losses.
For the years ended June 30, 2006 and June 30, 2005, we had net income of $1,393,596 and net loss of $3,408,037 respectively. There can be no assurance that we will operate at a profit during future fiscal years. If we do not operate profitably in the future our current cash resources will be used to fund our operating losses. If this were to continue, in order to continue with our operations, we would need to raise additional capital. Continued losses would have an adverse effect on the long term value of our common stock and your investment in the Company. We cannot give any assurance that we will ever generate significant revenue or have sustainable profits.
Our liquidity and capital requirements will be difficult to predict, which may adversely affect our cash position in the future.
We have recently completed the sale of shares of our common stock from which we received gross offering proceeds of $5,000,000. We anticipate that we will have adequate cash resources to fund our operations for at least the next 12 months. Thereafter, our liquidity and capital requirements will depend upon numerous other factors, including the following:
o The extent to which our products and services gain market acceptance;
o The progress and scope of product evaluations;
o The timing and costs of acquisitions and product and services introductions;
o The extent of our ongoing research and development programs; and
o The costs of developing marketing and distribution capabilities.
If in the future, we are required to seek additional financing in order to fund our operations and carry out our business plan, there can be no assurance that such financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interests.
Operating results may fluctuate, which makes it difficult to predict future performance.
Management expects a portion of the Company's revenue stream to come from license sales, maintenance and services charged to new customers, which will fluctuate in amounts because software sales to
retailers are difficult to predict. In addition, the Company may potentially experience significant fluctuations in future operating results caused by a variety of factors, many of which are outside of its control, including:
o Demand for and market acceptance of new products;
o Introduction or enhancement of products and services by the Company or its competitors;
o Capacity utilization;
o Technical difficulties, system downtime;
o Fluctuations in data communications and telecommunications costs;
o Maintenance subscriber retention;
o The timing and magnitude of capital expenditures and requirements;
o Costs relating to the expansion or upgrading of operations, facilities, and infrastructure;
o Changes in pricing policies and those of competitors;
o Changes in regulatory laws and policies, and;
o General economic conditions, particularly those related to the information technology industry.
Because of the foregoing factors, future operating results may fluctuate. As a result of such fluctuations, it will be difficult to predict operating results. Period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon as an indicator of future performance. In addition, a relatively large portion of our expenses will be fixed in the short-term, particularly with respect to facilities and personnel. Therefore, future operating results will be particularly sensitive to fluctuations in revenues because of these and other short-term fixed costs.
We will need to effectively manage our growth in order to achieve and sustain profitability. Our failure to manage growth effectively could reduce our sales growth and result in continued net losses.
To commence profitable operations on a fiscal year basis, we must have significant growth in our revenues from the sale of our products and services. If we are able to achieve significant growth in our future sales and to expand the scope of our operations, and our management, financial, and other capabilities, our existing procedures and controls could be strained. We cannot be certain that our existing or any additional capabilities, procedures, systems, or controls will be adequate to support our operations. We may not be able to design, implement, or improve our capabilities, procedures, systems, or controls in a timely and cost-effective manner. Failure to implement, improve and expand our capabilities, procedures, systems, and controls in an efficient and timely manner could reduce our sales growth and result in continued net losses.
Our officers and directors have significant control over us that may lead to conflicts with other stockholders over corporate governance.
Our officers and directors, other than our Chief Executive Officer, control approximately 6.88% of our common stock. Our Chief Executive Officer, Randall K. Fields, individually, controls 48.51% of our common stock. Consequently, Mr. Fields, individually, and our officers and directors, as stockholders acting together, will be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business combination transactions.
Our corporate charter contains authorized, unissued "blank check" preferred stock that can be issued without stockholder approval with the effect of diluting then current stockholder interests.
Our certificate of incorporation currently authorizes the issuance of up to 30,000,000 shares of "blank check" preferred stock with designations, rights, and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered, without stockholder approval, to issue one or more additional series of preferred stock with dividend, liquidation, conversion, voting, or other rights that could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying, or preventing a change in control.
Because we have never paid dividends, you should exercise caution before making an investment in our common stock.
We have never paid dividends nor do we anticipate the declaration or payments of any dividends in the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our Board of Directors will determine future dividend policy at their sole discretion and future dividends will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors. Future dividends may also be affected by covenants contained in loan or other financing documents, which may be executed by us in the future. Therefore, there can be no assurance that dividends of any kind will ever be paid.
Our business is dependent upon the continued services of our founder and Chief Executive Officer, Randall K. Fields; should we lose the services of Mr. Fields, our operations will be negatively impacted.
Our business is dependent upon the expertise of our founder and Chief Executive Officer, Randall K. Fields. Mr. Fields is essential to our operations. Accordingly, you must rely on Mr. Fields' management decisions that will continue to control our business affairs after the offering. We currently maintain key man insurance on Mr. Fields' life in the amount of $10,000,000; however, that coverage would be inadequate to compensate for the loss of his services. The loss of the services of Mr. Fields would have a materially adverse effect upon our business.
If we are unable to attract and retain qualified personnel, we may be unable to develop, retain or expand the staff necessary to support our operational business needs.
Our current and future success depends on our ability to identify, attract, hire, train, retain and motivate various employees, including skilled software development, technical, managerial, sales, marketing and customer service personnel. Competition for such employees is intense and we may be unable to attract or retain such professionals. If we fail to attract and retain these professionals, our revenues and expansion plans will be negatively impacted.
Our officers and directors have limited liability and indemnification rights under our organizational documents, which may impact our results.
Our officers and directors are required to exercise good faith and high integrity in the management of our affairs. Our certificate of incorporation and bylaws, however, provide, that the officers and directors shall have no liability to the stockholders for losses sustained or liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase, or derived an improper benefit from the transaction. As a result, you may have a more limited right to action than you would have had if such a provision were not present. Our certificate of incorporation and bylaws also require us to indemnify our officers and directors against any losses or liabilities they may incur as a result of the manner in which they operate our business or conduct our internal affairs, provided that the officers and directors reasonably believe such actions to be in, or not opposed to, our best interests, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations.
If our marketing strategy fails, our revenues and operations will be negatively affected.
We plan to concentrate our future sales efforts towards marketing our applications and services. These applications and services are designed to be highly flexible so that they can work in multiple retail and supplier environments such as grocery stores, convenience stores, quick service restaurants, and route-based delivery environments. There is no assurance that the public will accept our applications and services in proportion to our increased marketing of this product line. We may face significant competition that may negatively affect demand for our applications and services, including the public's preference for our competitors' new product releases or updates over our releases or updates. If our applications and services marketing strategy fails, we will need to refocus our marketing strategy to our other product offerings, which could lead to increased marketing costs, delayed revenue streams, and otherwise negatively affect our operations.
Because we are changing the emphasis of our sales activities from an annual license fee structure to a monthly fee structure, our revenues may be negatively affected.
Historically, we offered our applications and related maintenance contracts to new customers on a one-time up front license strategy and provided an option for annually renewing their maintenance agreements. Because our one-time licensing fee approach was subject to inconsistent and unpredictable revenues, we now offer prospective customers an option for monthly licensing of these products. Our customers may now choose to acquire the software in an Application Solution Provider basis, resulting in monthly charges for use of our software products and maintenance fees. Our conversion from a one-time licensing strategy to monthly-based fees is subject to the following risks:
o Our customers may prefer one-time fees rather than monthly fees;
o Because public awareness pertaining to our Application Solution Provider services will be delayed until we begin our marketing campaign to promote those services, our revenues may decrease over the short term; and
o There maybe a threshold level (number of locations) at which the monthly based fee structure may not be economical to the customer, and a request to convert from monthly fees to annual fee could occur.
We face competition from competing and emerging technologies that may affect our profitability. The markets for our type of software products and that of our competitors are characterized by:
o Development of new software, software solutions, or enhancements that are subject to constant change;
o Rapidly evolving technological change; and
o Unanticipated changes in customer needs.
Because these markets are subject to such rapid change, the life cycle of our products is difficult to predict; accordingly, we are subject to the following risks:
o Whether or how we will respond to technological changes in a timely or cost-effective manner;
o Whether the products or technologies developed by our competitors will render our products and services obsolete or shorten the life cycle of our products and services; and
o Whether our products and services will achieve market acceptance.
If we are unable to adapt to our constantly changing markets and to continue to develop new products and technologies to meet our customers' needs, our revenues and profitability will be negatively affected.
Our future revenues are dependent upon the successful and timely development and licensing of new and enhanced versions of our products and potential product offerings suitable to our customer's needs. If we fail to successfully upgrade existing products and develop new products, and those new products do not achieve market acceptance, our revenues will be negatively impacted.
Our business is currently dependent upon a limited customer base; should we lose any of these customer accounts, our revenues will be negatively impacted.
We expect that existing customers will continue to account for a substantial portion of total revenues in future reporting periods. The ability to retain existing customers and to attract new customers will depend on a variety of factors, including the relative success of marketing strategies and the performance, quality, features, and price of current and future products. Accordingly, if customer accounts are lost or customer orders decrease, revenues and operating results will be negatively impacted. We have experienced the loss of long term maintenance customers because the product is so reliable they do not want to continue to pay for maintenance that they do not need or use, and in some cases, the customer has decided to replace Park City Group applications. We continue to focus on these long term clients by providing new functionality and applications to meet their business needs. We also expect to lose some maintenance revenue due to consolidation of industries or customer operational difficulties that lead to their reduction of size. In addition, future revenues will be negatively impacted if we fail to add new customers that will make additional purchases of our products and services.
We may be unable to expand our now limited customer base.
We must increase our customer base to expand our operations and increase our revenues. Our future customer base is dependent upon the Company generating sufficient new customer accounts. If we fail to generate sufficient new customer accounts, our revenues will not expand and may decline, which will negatively impact our operations and financial condition. Additionally, the retail industry may be facing consolidation which could lead to a reduced prospective customer base from which to transact business.
We face risks associated with proprietary protection of our software.
Our success depends on our ability to develop and protect
existing and new proprietary technology and intellectual property
rights. We seek to protect our software, documentation and other
written materials primarily through a combination of patents,
trademarks, and copyright laws, trade secret laws, confidentiality
procedures and contractual provisions. While we have attempted to
safeguard and maintain our proprietary rights, there are no assurances
there we will be successful in doing so. Our competitors may
independently develop or patent technologies that are substantially
equivalent or superior to ours.
Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or
obtain and use information that we regard as proprietary. In some types
of situations, we may rely in part on "shrink wrap" or "point and
click" licenses that are not signed by the end user and, therefore, may
be unenforceable under the laws of certain jurisdictions. Policing
unauthorized use of our products is difficult. While we are unable to
determine the extent to which piracy of our software exists, software
piracy can be expected to be a persistent problem, particularly in
foreign countries where the laws may not protect proprietary rights as
fully as the United States. We can offer no assurance that our means of
protecting our proprietary rights will be adequate or that our
competitors will not reverse engineer or independently develop similar
technology.
We incorporate a number of third party software providers' licensed technologies into our products, the loss of which could prevent sales of our products or increase our costs due to more costly substitute products.
We license technologies from third party software providers and such technologies are incorporated into our products. We anticipate that we will continue to license technologies from third parties in the future. The loss of these technologies or other third-party technologies could prevent sales of our products and increase our costs until substitute technologies, if available, are developed or identified, licensed and successfully integrated into our products. Even if substitute technologies are available, there can be no guarantee that we will be able to license these technologies on commercially reasonable terms, if at all.
We may discover software errors in our products that may result in a loss of revenues or injury to our reputation.
Non-conformities or bugs ("errors") may be found from time to time in our existing, new or enhanced products after commencement of commercial shipments, resulting in loss of revenues or injury to our reputation. In the past, we have discovered errors in our products and as a result, have experienced delays in the shipment of products. Errors in our products may be caused by defects in third-party software incorporated into our products. If so, we may not be able to fix these defects without the cooperation of these software providers. Since these defects may not be as significant to the software provider as they are to us, we may not receive the rapid cooperation that may be required. We may not have the contractual right to access the source code of third-party software and, even if we do have access to the source code, we may not be able to fix the defect. Since our customers use our products for critical business applications, any errors, defects or other performance problems could result in damage to our customers' business. These customers could seek significant compensation from us for their losses. Even if unsuccessful, a product liability claim brought against us would likely be time consuming and costly.
Some competitors are larger and have greater financial and operational resources that may give them an advantage in the market.
Many of our competitors are larger and have greater financial and operational resources. This may allow them to offer better pricing terms to customers in the industry, which could result in a loss of potential or current customers or could force us to lower prices. Any of these actions could have a significant effect on revenues. In addition, the competitors may have the ability to devote more financial and operational resources to the development of new technologies that provide improved operating functionality and features to their product
and service offerings. If successful, their development efforts could render our product and service offerings less desirable to customers, again resulting in the loss of customers or a reduction in the price we can demand for our offerings.
If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTC Bulletin Board, like us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in our reports under Section 13 to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely and adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9, which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
o that a broker or dealer approve a person's account for transactions in penny stocks; and
o the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
o obtain financial information and investment experience objectives of the person; and
o make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the suitability determination; and
o that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities, and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
The limited public market for our securities may adversely affect your ability to liquidate your investment
Although our common stock is currently quoted on the OTC Bulletin Board (OTCBB), there is limited trading activity. We can give no assurance that an active market will develop, or if developed, that it will be sustained. If you acquire shares of our common stock, you may not be able to liquidate your investment in such shares should you need or desire to do so.
Future issuances of our shares may lead to future dilution in the value of our common stock, and will lead to a reduction in shareholder voting power, and preventing a change in Company control.
The shares may be substantially diluted due to the following:
o Issuance of common stock in connection with funding agreements with third parties and future issuances of common and preferred stock by the Board of Directors; and
o The Board of Directors has the power to issue additional shares of common stock and preferred stock and the right to determine the voting, dividend, conversion, liquidation, preferences and other conditions of the shares without shareholder approval.
Stock issuances may result in reduction of the book value or market price of outstanding shares of common stock. If we issue any additional shares of common or preferred stock, proportionate ownership of common stock and voting power will be reduced. Further, any new issuance of common or preferred shares may prevent a change in control or management.
We commenced operations in the software development and professional services business during 1990. The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions, including those related to inventory, income taxes, revenue recognition and restructuring initiatives. We anticipate that management will base its estimates and judgments on historical experience of the operations we may acquire and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among others, will affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Income Taxes. In determining the carrying value of the Company's net deferred tax assets, the Company must assess the likelihood of sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions, to realize the benefit of these assets. If these estimates and assumptions change in the future, the Company may record a reduction in the valuation allowance, resulting in an income tax benefit in the Company's Statements of Operations. Management evaluates the realizability of the deferred tax assets and assesses the valuation allowance quarterly.
Goodwill and Other Long-Lived Asset Valuations. In June 2001, the FASB issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001 with early adoption permitted for companies with fiscal years beginning after March 15, 2001. We adopted the new rules on accounting for goodwill and other intangible assets during the first quarter of fiscal 2004. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives.
Revenue Recognition. The Company's revenues are derived from the sale of software, maintenance of software, professional consulting services and software hosting services. Revenue from the sale of software is recognized at the time the software is shipped to the customer. The Company also defers a portion of the software license fee equal to the cost of maintenance for the warranty period on all license sales that are either to a new customer or are a new product being sold to and existing customer. Customers who purchases additions licenses for software they already have and are paying maintenance on waive the warranty period. Revenue from maintenance of software, professional consulting services and software hosting services is recognized during the month the services are preformed.
Stock-Based Compensation. The Company accounts for its employee stock-based compensation plans using the intrinsic value method, as prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, the Company records deferred compensation costs related to its employee stock options when the current market price of the underlying stock exceeds the exercise price of each stock option on the measurement date (usually the date of grant). The Company records and measures deferred compensation for stock options granted to non-employees, other than
members of the Company's Board of Directors, using the fair value based method. Deferred compensation is expensed on a straight-line basis over the vesting period of the related stock option. During 2005 and 2004, the Company did not grant any stock options to employees or members of the Company's Board of Directors with exercise prices below the market price on the measurement date.
An alternative method to the intrinsic value method of accounting for stock-based compensation is the fair value based method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." If the Company used the fair value based method, the Company would be required to record deferred compensation based on the fair value of the stock option at the date of grant as computed using an option-pricing model, such as the Black-Scholes option pricing model. The deferred compensation calculated under the fair value based method would then be amortized over the vesting period of the stock option
Capitalization of Software Development Costs The Company accounts for research and development costs in accordance with several accounting pronouncements, including SFAS No. 2, Accounting for Research and Development Costs, and SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. SFAS No. 86 specifies that costs incurred internally in researching and developing a computer software product should be charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs should be capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached shortly after a working prototype is complete and meets or exceeds design specifications including functions, features, and technical performance requirements. Costs incurred after technological feasibility is established have been and will continue to be capitalized until such time as when the product or enhancement is available for general release to customers.
None
See the index to consolidated financial statements and consolidated financial statement schedules included herein as Item 13.
On August 12, 2005, the Company dismissed Tanner LC as its principal accountant to audit its financial statements. There have been no disagreements between Tanner and the Company on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of Tanner, would have caused it to make a reference to the subject matter of any such disagreement within its report. We filed a Form 8-K to report on the above described change of accountants. Attached as an exhibit to each of such filings was a letter from Tanner LC stating that it agreed with the statements we made in such filings relating to our change of auditor. Also on August 12, 2005 the Company hired HJ & Associates, LLC as its principal accountant.
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of June 30, 2005. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission ("SEC") rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
While the Company believes that the disclosure controls currently in place are adequate to prevent material misstatements, the Company has found significant internal control deficiencies in its accounting for property, plant and equipment. As previously stated in prior periodic filings and in conjunction with conducting a self-assessment and in preparation for compliance for Section 404 of the Sarbanes-Oxley Act of 2002, the Company has identified deficiencies in tracking Pre-1999, fully depreciated computer and other related equipment and its relationship to internal tracking of long-standing, and aged Property, Plant and Equipment. Due to the fact that these specific assets have been fully depreciated, the Company has concluded that no material misstatement or material weakness exists. The Company has implemented
Sage Fixed Asset tracking software and expects to reconcile and dispose of non-working, unutilized assets once the Company has relocated its operations to the new facility on or about November 1, 2006.
(b) Changes in internal controls over financial reporting.
The Company's Chief Executive Officer and Chief Financial Officer have determined that there have been no changes in the Company's internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company's internal control over financial reporting.
Not applicable
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PART III
The Board of Directors and executive officers consist of the persons named in the table below. Vacancies in the Board of Directors may only be filled by the Board of Directors by majority vote at a Board of Director's meeting of which stockholders holding a majority of the issued and outstanding shares of capital stock are present. The directors are elected annually by the stockholders at the annual meeting. Each director shall be elected for the term of one year, and until his or her successor is elected and qualified, or until earlier resignation or removal. The bylaws provide for at least one director. The directors and executive officers are as follows:
Name Age Position - Committee
---- --- --------------------
Randall K. Fields 59 Chief Executive Officer
Chairman of the Board and Director
*William Dunlavy 51 Chief Financial Officer and Secretary
Thomas W Wilson 74 Director and Compensation Committee Chairman
**Edward C. Dmytryk 60 Director and Audit Committee Chairman
--------------
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*Appointed CFO on 8/23/04
**Appointed Audit Committee Chairman 10/1/2004
Randall K. Fields has been the Chief Executive Officer, and Chairman of the Board of Directors since June, 2001. Mr. Fields founded Park City Group, Inc., a software development company based in Park City, Utah, in 1990 and has been its President, Chief Executive Officer, and Chairman of the Board since its inception in 1990. Mr. Fields has been responsible for the strategic direction of Park City Group, Inc. since its inception. Mr. Fields co-founded Mrs. Fields Cookies with his then wife, Debbi Fields. He served as Chairman of the Board of Mrs. Fields Cookies from 1978 to 1990. In the early 1970's Mr. Fields established a financial and economic consulting firm called Fields Investment Group. Mr. Fields received a Bachelor of Arts degree in 1968 and a Masters of Arts degree in 1970 from Stanford University, where he was Phi Beta Kappa, Danforth Fellow and National Science Foundation Fellow.
William Dunlavy has been appointed CFO and Secretary as of August, 2004. Mr. Dunlavy joined Fresh Market Manager LLC in 1999 as its Chief Operating Officer and continued in the same capacity with the acquisition of Fresh Market Manager LLC in 2001. He has been responsible for the design of the business functionality in the Fresh Market Manager product in addition to his business operations activities for Park City Group. He was formerly the Chief Operating Officer at Mrs. Fields Cookies, Director of Operations at Golden Corral Family Restaurants, head of Fresh Foods at Harris Teeter, Inc. and head of Fresh Foods at Raley's and Bel Air Supermarkets. He has also served as a board member of the International Deli, Dairy, Bakery Association.
Thomas W. Wilson, Jr. has been a director since August, 2001. From 1995 to 1999, Mr. Wilson was the Chairman of the Board Information Resources, Inc., a Chicago, Illinois-based provider of point-of-sale information based business solutions to the consumer packaged goods industry. From 1998 to 1999, Mr. Wilson was the Interim Chief Executive Officer of Information Resources, Inc. From 1966 to 1990, Mr. Wilson was employed in various capacities with McKinsey & Co., a management consulting company. In 1968, Mr. Wilson was elected a Partner of McKinsey and Co., and in 1972 he was elected a Senior Partner. Mr. Wilson received a Bachelor of Arts Degree from Dartmouth College and a Masters of Business Administration Degree from the Wharton School of the University of Pennsylvania.
Edward C. Dmytryk has been a director since June, 2000. In October 2002, Mr. Dmytryk took on additional responsibilities as acting Chief Financial Officer and as such resigned from the Audit Committee. He served in this capacity until
June 2003. Later in 2003, Mr. Dmytryk became the Chief Executive Officer of Safescript Pharmacies, Inc ( SAFS) due to a request by the Safescript Pharmacies, Inc. Board of Directors to restructure the Company during a liquidity crisis and a SEC investigation. He restructured the Company and helped arranged the sale of assets to a group of interested investors. He remains the CEO due to the complications of the sale and the damage caused by hurricane Katrina in New Orleans where 3 operating pharmacies were located. Currently, Mr. Dmytryk is the CEO of RxPert, Inc., a Pharmacy company located in Ponte Vedra, Florida. Mr. Dmytryk graduated Summa Cum Laude from the Citadel, the Military College of South Carolina in 1968 with a Bachelor of Science Degree and was an Instructor Pilot in the United States Air Force..
Our Executive Officers are elected by the Board on an annual basis and serve at the discretion of the Board.
Audit Committee. The audit committee provides assistance to the board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The audit committee also oversees the audit efforts of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. The audit committee currently consists of Edward C. Dmytryk (Chairman) and Thomas W. Wilson Jr., each of whom is a non-management member of our board of directors. Edward C. Dmytryk is also our audit committee financial expert as currently defined under Securities and Exchange Commission rules. We believe that the composition of our audit committee meets the criteria for independence under, and the functioning of our audit committee complies with the applicable requirements of, the Sarbanes-Oxley Act of 2002, the current rules of the Over-the-Counter Bulletin Board Stock Market and Securities and Exchange Commission rules and regulations. We intend to comply with future audit committee requirements as they become applicable to us.
Compensation Committee. The compensation committee determines our general compensation policies and the compensation provided to our directors and officers. The compensation committee also reviews and determines bonuses for our officers and other employees. In addition, the compensation committee reviews and determines equity-based compensation for our directors, officers, employees and consultants and administers our stock option plans and employee stock purchase plan. The current members of the compensation committee are Thomas W. Wilson Jr. (Chairman), and Edward C. Dmytryk, each of whom is a non-management member of our board of directors. We believe that the composition of our compensation committee meets the criteria for independence under, and the functioning of our compensation committee complies with the applicable requirements of, the Sarbanes-Oxley Act of 2002, the current rules of the Over-the-Counter Bulletin Board Stock Market and Securities and Exchange Commission rules and regulations. We intend to comply with future compensation committee requirements as they become applicable to us.
Nominating and Corporate Governance Committee. The nominating and corporate governance committee is responsible for making recommendations to the board of directors regarding candidates for directorships and the size and composition of the board. In addition, the nominating and corporate governance committee is responsible for overseeing our corporate governance guidelines and reporting and making recommendations to the board concerning corporate governance matters. The current members of the nominating and governance committee are Randall K Fields (Chairman), and Edward C. Dmytryk. We believe that the composition of our nominating and governance committee meets the criteria for independence under, and the functioning of our nominating and corporate governance committee complies with the applicable requirements of, the Sarbanes-Oxley Act of 2002, the current rules of the Over-the-Counter Bulletin Board Stock Market and Securities and Exchange Commission rules and regulations. We intend to comply with future nominating and corporate governance committee requirements as they become applicable to us.
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The following table sets forth information concerning the compensation paid to the Company's Chief Executive Officer, and all persons serving as the Company's most highly compensated executive officers other than its chief executive officer, who were serving as executive officers as of June 30, 2006 and whose annual compensation exceeded $100,000 during such year (collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Restricted Securities
Other Annual Stock Underlying LTIP
Name and Principal Year/ Compensation Awards Options/SARs Payouts
Position Period Salary ($) Bonus ($) ($) ($) (#) ($)
------------------ ------ ---------- --------- ------------ ----------- ------------- ---------
Randall K. Fields 2006 279,167* - 71,126 (1) 45,833 - -
Chairman and CEO 2005 317,500* - 61,037 (1) 50,000 - -
2004 317,500* 4,377 46,760 (1) 50,000 - -
James Horton 2006 243,750** - - - -
President and COO 2005 270,833** - - - 8,336
William Dunlavy 2006 197,625 - - 22,500 -
CFO 2005 198,958 - - - 6,772 -
2004 100,000 4,377 - 50,000 - -
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* A significant part of Mr. Fields salary is paid to a management company wholly owned by Mr. Fields. ** Mr. Horton joined the Company in September 2004 and resigned March 2006.
(1) These amounts include premiums paid on Life Insurance policies of $52,958, $46,622 and $27,614 for 2006, 2005 and 2004, respectively, Company car related expenses of $15,347, $13,003 and $14,880 for 2006, 2005 and 2004, respectively; and medical premiums of $2,821 and $1,412 for 2006 and 2005, respectively.
The following table sets forth information on grants of options to
purchase shares of our common stock in fiscal year 2006 to our officers and
directors.
Individual Grants
--------------------------------------------------------------------------------
% of Total Options and
Number of Securities Warrants Granted to Exercise
Underlying Options and Employees & Directors Price
Name Warrants Granted in Fiscal Year ($/Sh)(1) Expiration Date
------------------------------------ ------------------------ ------------------------ ------------- ----------------
William Dunlavy 80,000 86% $3.25 06/30/2011
Edward Dmytryk 6,667 7% $3.00 01/01/2008
Thomas Wilson 6,667 7% $3.00 01/01/2008
(1) The exercise price was equal to 100% of the fair market value on the date of grant.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option Values
Securities Underlying Value of Unexercised
Shares Acquired on Value Unexercised Options and Warrant In-the-Money Options at
June 30, 2006 at June 30, 2006 June 30, 2006
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
James Horton - N/A 128,571 - N/A -
Riverview Financial(1) - N/A 175,232 - 175,232.28 -
William Dunlavy - N/A 10,000 - 15,000.00 -
William Dunlavy - N/A 6,772 - N/A -
William Dunlavy - N/A 80,000 - N/A -
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(1) Riverview Financial is an affiliate of Mr. Fields.
o An annual base compensation of $350,000,
o Use of a company vehicle,
o Employee benefits that are generally provided to Park City Group,
Inc. employees, and
o A bonus to be determined annually by the Compensation Committee of
the Board of Directors.
Park City Group had an employment agreement with its President and chief
operating officer, James Horton, dated effective September 1, 2004. Mr. Horton
resigned from the Compamy on March 31, 2006. This agreement provided Mr. Horton
with the following compensation:
o An annual base compensation of $325,000,
o An annual bonus based on the percent of his base pay that is equal
to the revenue growth of the Company provided that the company's
revenue grows at least 25% and that the pretax profits grow at an
equal or greater percent, 1/2 of this bonus will be paid in cash and
1/2 will be paid in stock,
o Employee benefits that are generally provided to Park City Group,
Inc. employees, and
o Stock options equal to 3 to 1 for each share of stock purchased at a
cost of $3.50 or the current market price, which ever is higher,
through September 30, 2005 with an exercise price of $3.50 or the
current market price, which ever is higher,
o Stock options equal to 2 to 1 for each share of stock purchased at a
cost of $3.50 or the current market price, which ever is higher,
$3.50 or the current market price, which ever is higher, there
after.
Fresh Market Manager LLC (FMM), formerly Cooper Fields LLC a subsidiary of Park
City Group, Inc. had an employment agreement with its COO, William Dunlavy,
dated effective May 1, 1999. This agreement provides Mr. Dunlavy with the
following compensation:
o An annual base compensation of $115,000,
o An annual bonus of $25,000.
o 1% ownership of FMM per year up to a maximum of 5%
NOTE: On September 28, 2006 Park City Group, Inc. issued a warrant to purchase
80,000 shares of common stock in satisfaction of the agreement dated July 1,
1999. See exhibit 10.12 & 10.13
Annual cash compensation of $10,000 payable at the rate of $2,500 per quarter. The Company has the right to pay this amount in the form of shares of Company Stock.
Annual options to purchase $20,000 of the Company restricted common stock at the market value of the shares on the date of the grant, which is to be the first day the stock market is open in January of each year.
permitted for directors, officers and controlling persons of the Company pursuant to the foregoing or otherwise. However, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
At June 30, 2006 a total of 896,837 warrants to purchase shares of common stock were outstanding. Of those warrants, 506,448 were issued in connection with certain debt financings; 128,571 were issued in connection with an equity investment by an officer; 181,818 were issued as a commission for placement of equity securities; and 80,000 were issued to an officer in satisfaction of employment agreement obligations. These warrants have exercise prices ranging from $2.00 to $3.65 per share and expire between August 16, 2007 and June 30, 2011.
Compensation Committee Interlocks and Insider Participation
No executive officers of the Company serve on the Compensation Committee (or in a like capacity) for the Company or any other entity.
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Amount of
Title of Beneficial Nature of
Class Name and Address of Beneficial Owner Ownership(1) Ownership Percent of Class
----- ------------------------------------ ----------- --------- ----------------
Common Randall K. Fields, Park City, Utah 487,206 Direct 5.46%
Common Riverview Financial Corp., Park City, Utah (2) 3,845,140 (3) Direct 43.05%
--------- ------
Total 4,332,346 48.51%
========= ======
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(1) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the total number of shares beneficially owned by
the designated person, but are not deemed outstanding for computing the
percentage for any other person.
(2) Randall K. Fields is the president and 100% shareholder of Riverview
Financial Corp.
(3) Includes warrants to purchase 175,232 shares of common stock and 2,688
shares of common stock held in the name Fields Management, Inc. a wholly
owned subsidiary of Riverview Financial Corp.
Security Ownership of Management
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of September 28, 2006, for each of the
directors, each of the Named Executive Officers, and all directors and executive
officers as a group. As of September 28, 2006, there were 8,930,766 shares of
Common Stock outstanding.
Amoumt of
Beneficial Nature of
Title of Class Name, Position and Address of Beneficial Owner Ownership(1) Ownership Percent of Class
-------------- ---------------------------------------------- ----------- --------- ----------------
Common Randall K. Fields, CEO, Chairman and Director 4,332,346 (2) Direct and 48.51%
Park City, Utah Indirect
Common Edward C. Dmytryk, Director 52,140 (3) Direct *
Ocala, Florida
Common Thomas W. Wilson Jr., Director 300,218 (4) Direct 3.37%
Westport, Connecticut
Common William Dunlavy, CFO 132,314 (5) Direct 1.49%
Park City, Utah
Common Shaun Broadhead, Director of Research and 66,016 (6) Direct *
Development
Heber, Utah
Common Carolyn Doll, VP of Marketing 63,016 (7) Direct *
Heber, Utah
Common Executive Officers & Directors as a Group 4,946,050 55.39%
======
-----------------
* Less than 1%.
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(1) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the total number of shares beneficially owned by
the designated person, but are not deemed outstanding for computing the
percentage for any other person.
(2) Includes 3,845,140 shares of common stock beneficially owned by Riverview
Financial Corp., which is 100% owned by Randall K. Fields.
(3) Includes options to purchase 14,167 shares of common stock.
(4) Includes options and warrants to purchase 100,014 shares of common stock.
(5) Includes options to purchase 96,772 shares of common stock.
(6) Includes options to purchase 7,000 shares of common stock.
(7) Includes options to purchase 4,000 shares of common stock.
The Company had a note payable to Riverview Financial Corporation (Riverview), in the principal amount of $3,296,406 at June 30, 2005 with accrued interest of $841,995. The chief executive of Riverview is also the chief executive of the Company. In June 2004, the Company issued 49,600 shares of common stock to Riverview to subordinate to the extended Whale Investments note. In March 2006 the note payable and accrued interest of $294,334 were converted to 1,324,693 shares of common stock. See Note 12 and 16 to the audited financial statements.
Riverview had loaned the Company $345,000 under a note payable bearing interest at 18%. Payments were made monthly for interest only, with the principal due in December 2005. Riverview was issued 17,143 shares of common stock as an inducement to make the loan. The note was extended in June 2004 to December 2005 and again in January 2006 to December 2006. The loan was retired with cash proceeds from a note payable funding from a bank in March 2006.
The Company's CEO has made loans to the Company through Riverview Financial Corp. a wholly owned entity, to cover short term cash needs pursuant to a line of credit promissory note payable. Repayments are made as funds are available, with an extended due date of June 15, 2007 and interest is at 12%. In February 2006, the line of credit the Company has with Riverview was cancelled and reissued in the amount of $800,000. The reissued line of credit carries an interest rate of 12% with a fee for draws on the line. There was no balance due under the line of credit at June 30, 2006. See note 7 to the audited financial statements.
In December 2002 the Company obtained a $2,000,000 note payable funding from Whale Investment, Ltd. The note bore interest at 18%, payable monthly, and was due in December 2005, as extended. Whale Investment, Ltd. is controlled by an individual who was already a shareholder of the Company at the time of the loan. The extended note was due December 2005 and the Company paid to Whale Investments $40,000 in cash and 20,000 in common stock valued at $80,000 as consideration for the extension. The note payable was retired with cash generated from operations in August 2005.
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Exhibits, Financial Statements and Schedules
The Consolidated Financial Statements of the Company and its subsidiaries are filed as part of this Report:
o Report of Independent Registered Public Accounting Firm
o Consolidated Balance Sheet as of June 30, 2006
o Consolidated Statement of Operations for the years ended June 30,
2006 and 2005
o Consolidated Statement of Stockholders' Deficit for the years ended
June 30, 2006 and 2005
o Consolidated Statement of Cash Flows for the years ended June 30,
2006 and 2005
o Notes to Consolidated Financial Statements
Exhibit
Number Description
------ -----------
2.1 Reorganization Agreement by and Among Amerinet.com,
Inc., Randall K. Fields and Riverview Financial Corp.
(1)
2.2 First Amendment to Reorganization Agreement (1)
2.3 Second Amendment to Reorganization Agreement (1)
3.1 Article Of Incorporation (2)
3.2 Certificate Of Amendment (3)
3.3 Bylaws (2)
3.4 Certificate of Amendment
10.1 Warrant To Purchase Common Stock (4)
10.2 Form Of Securities Purchase Agreement (5)
10.3 Placement Agent Agreement (5)
10.4 Form Of Warrant, Dated June 14, 2006 (5)
10.5 Consulting Services Agreement (7)
10.6 Right Of First Offer Agreement (7)
10.7 Warrant To Purchase Common Stock (8)
10.8 Employment Agreement Randall K. Fields
10.9 Employment Agreement William Ruby
10.10 Employment Agreement Patrick Paterson
10.11 Commercial Real Estate Lease - Pinebrook
10.12 Warrant to Purchase Common Stock
10.13 Accord and Satisfaction of an Employment Agreement
with William Dunlavy
14.1 Code of Ethics (9)
31.1 Certification of Principal Executive Officer pursuant
to Section 302 of the Sarbanes Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant
to Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification of Principal Executive Officer pursuant
to 18 U.S.C Section 1350
32.2 Certification of Principal Financial Officer pursuant
to 18 U.S.C Section 1350
|
(1) Incorporated by reference from our Form 8-K dated June 13, 2001.
(2) Incorporated by reference from our Form DEF 14C dated June 5, 2002.
(3) Incorporated by reference from our Form 10-QSB for the year ended
Sept 30, 2005.
(4) Incorporated by reference from our Form 8-K dated November 27,
2002.
(5) Incorporated by reference from our Form 8-K dated June 14, 2006.
(6) Incorporated by reference from our Form 10-KSB dated June 30, 2005.
(7) Incorporated by reference from our Form 8-K dated August 05, 2005.
(8) Incorporated by reference from our Form 8-K dated August 16, 2002.
The Audit Committee has adopted policies and procedures to oversee the external audit process including engagement letters, estimated fees and solely pre-approving all permitted non-audit work performed by HJ & Associates, LLC and Tanner LC. The Committee has pre-approved all fees for work performed.
The Audit Committee has considered whether the services provided by HJ & Associates, LLC and Tanner LC as disclosed below in the captions "Audit-Related Fee", "Tax Fees" and "All Other Fees" and has concluded that such services are compatible with the independence of HJ & Associates, LLC and Tanner LC as the Company's principal accountants.
For the fiscal years 2006 and 2005, the Audit Committee pre-approved all services described below in the captions "Audit Fees", "Audit-Related Fees", "Tax Fees" and "All Other Fees". For fiscal year 2006 and 2005, no hours expended on HJ & Associates, LLC's and Tanner LC's engagement to audit the Company's financial statements were attributed to work performed by persons other than full-time, permanent employees of HJ & Associates, LLC and Tanner LC.
The aggregate fees billed for professional services by HJ & Associates, LLC in fiscal year 2006 and 2005 and Tanner LC in fiscal year 2005 for these various services were:
Type of Fees 2006 2005
---------------- ------- -------
Audit Fees $49,500 $53,450
Audit-Related Fees - -
Tax Fees - 8,400
All Other Fees - -
------- -------
Total $49,500 $64,850
======= =======
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(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PARK CITY GROUP, INC.
(Registrant)
Date: September 28, 2006 By /s/ Randall K. Fields
----------------------------------
Principal Executive Officer,
Chairman of the Board and Director
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Randall K. Fields Chief Executive Officer, September 28, 2006
|
------------------------- Chairman of the Board and Director Randall K. Fields (Principal Executive Officer)
/s/ William Dunlavy Chief Financial Officer and September 28, 2006 ------------------------- Secretary (Principal Financial William Dunlavy Officer) /s/ Edward C. Dmytryk Director September 28, 2006 ------------------------- Edward C. Dmytryk /s/ Thomas W. Wilson, Jr. Director September 28, 2006 ------------------------- Thomas W. Wilson, Jr. |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders of
Park City Group, Inc and Subsidiaries
Park City, Utah
We have audited the accompanying consolidated balance sheets of Park City Group, Inc. and Subsidiaries as of June 30, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park City Group, Inc. and Subsidiaries as of June 30, 2006 and 2005, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ HJ & Associates, LLC HJ & Associates, LLC Salt Lake City, Utah September 22, 2006 |
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
Assets June 30, 2006 June 30, 2005
--------------- ---------------
Current Assets:
Cash and cash equivalents $ 3,517,060 $ 209,670
Receivables, net of allowance of $126,324 and $56,000 at
June 30, 2006 and 2005, respectively 103,190 327,214
Other receivables 237,641 29,125
Prepaid expenses and other current assets 173,687 37,060
-------------- --------------
Total current assets 4,031,578 603,069
============== ==============
Property and equipment, net 84,741 109,512
-------------- --------------
Other assets:
Deposits and other assets 29,958 25,000
Capitalized software costs, net 680,187 332,349
-------------- --------------
Total other assets 710,145 357,349
-------------- --------------
Total assets $ 4,826,464 $ 1,069,930
============== ==============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 112,136 $ 628,398
Accrued liabilities 230,061 316,706
Deferred revenue 648,686 883,425
Current portion of capital lease obligations 16,774 23,159
Related party payable lines of credit - 619,743
Related party accrued interest - 848,258
Related party notes payable, net of discount of $12,375 at June 30, 2005 - 332,625
Notes payable, net of discounts of $54,976 at June 30, 2005 - 1,945,024
-------------- --------------
Total current liabilities 1,497,281 5,597,338
-------------- --------------
Long-term liabilities:
Long-term note payable, net of discount of $97,404 1,842,596 -
Long-term related party note payable, net of discount of
$122,992 at June 30, 2005 - 3,173,414
Capital lease obligations, less current portion 4,948 2,127
-------------- --------------
Total long-term liabilities 1,847,544 3,175,541
-------------- --------------
Total liabilities 3,344,825 8,772,879
-------------- --------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 30,000,000 shares authorized, none issued
Common stock, $0.01 par value, 50,000,000 shares authorized; 8,931,234
and 5,651,118 issued and outstanding at June 30, 2006 and 2005,
respectively 89,312 56,511
Additional paid-in capital 20,564,933 12,806,743
Accumulated deficit (19,172,607) (20,566,203)
-------------- --------------
Total stockholders' equity (deficit) 1,481,638 (7,702,949)
-------------- --------------
Total liabilities and stockholders' equity (deficit) $ 4,826,464 $ 1,069,930
============== ==============
See accompanying notes to consolidated financial statements.
30
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PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended June 30, 2006 and 2005
2006 2005
------------- -------------
Revenues:
Software licenses $ 3,626,821 $ 479,615
Maintenance and support 2,271,997 2,312,308
Application server provider 182,083 104,367
Consulting and other 1,004,224 735,522
------------- -------------
7,085,125 3,631,812
Cost of revenues 1,586,535 1,448,726
------------- -------------
Gross margin 5,498,590 2,183,086
------------- -------------
Operating expenses:
Research and development 292,191 1,019,411
Sales and marketing 1,375,794 1,337,318
General and administrative 1,518,092 2,055,940
------------- -------------
Total operating expenses 3,186,077 4,412,669
------------- -------------
Income (loss) from operations 2,312,513 (2,229,583)
Other income (expense):
Loss on derivative liability (34,513) -
Interest expense (884,404) (1,178,454)
------------- -------------
Income (loss) before income taxes 1,393,596 (3,408,037)
(Provision) benefit for income taxes - -
------------- -------------
Net income (loss) $ 1,393,596 $ (3,408,037)
============= =============
Weighted average shares, basic 6,084,000 5,489,000
============= =============
Weighted average shares, diluted 6,263,000 5,489,000
============= =============
Basic income (loss) per share $ 0.23 $ (0.62)
============= =============
Diluted income (loss) per share $ 0.22 $ (0.62)
============= =============
See accompanying notes to consolidated financial statements.
31
|
Park City Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended June 30, 2006 and 2005
Common Stock Additional
------------------- Paid-In Treasury Accumulated
Shares Amount Capital Stock Deficit Total
------ ------ ------- ----- ------- -----
Balance, June 30, 2004 5,374,323 $53,743 $11,966,546 $ - $(17,158,166) $(5,137,877)
Common stock issued for:
Compensation 173,817 1,738 470,517 - - 472,255
Services 14,320 143 39,617 - - 39,760
Settlement 41,300 413 164,787 - - 165,200
Debt refinancing 4,500 45 15,705 - - 15,750
Equity investment 42,857 429 149,571 - - 150,000
Net loss - - - - (3,408,037) (3,408,037)
------------ ----------- ------------- ------------- ------------ ------------
Balance, June 30, 2005 5,651,118 56,511 12,806,743 - (20,566,203) (7,702,949)
Common stock issued for:
Compensation 74,248 742 204,105 - - 204,847
Debt refinancing 4,500 45 15,705 - - 15,750
Debt conversion 1,324,693 13,247 3,460,356 - - 3,473,603
Exercise of options 58,571 586 116,557 - - 117,143
Cash, net of offering
costs 1,818,182 18,181 3,961,467 - - 3,979,648
Net income - - - - 1,393,596 1,393,596
------------ ----------- ------------- ------------- ------------ ------------
Balance, June 30, 2006 8,931,312 $89,313 $20,564,933 $ - $(19,172,607) $ 1,481,638
============ =========== ============= ============= ============ ============
See accompanying notes to consolidated financial statements.
32
|
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2006 and 2005
2006 2005
----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ 1,393,596 $ (3,408,037)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 288,433 337,851
Bad debt expense 70,324 358,158
Stock issued for services and expenses 204,849 677,215
Stock issued for interest 294,334 -
Amortization of discounts on debt 224,389 177,506
(Increase) decrease in:
Trade Receivables 153,700 457,786
Other receivables (208,515) (29,125)
Prepaids and other assets (141,585) 169,109
(Decrease) increase in:
Accounts payable (516,262) 301,227
Accrued liabilities (86,646) (108,377)
Deferred revenue (234,738) (228,490)
Related party payable 97,000 -
Accrued interest, related party (848,258) 500,859
----------------- -----------------
Net cash provided by (used in) operating activities 725,134 (794,318)
----------------- -----------------
Cash Flows From Investing Activities:
Purchase of property equipment (22,146) (35,345)
Capitalization of software costs (564,651) -
Proceeds from disposal of property - 3,400
----------------- -----------------
Net cash used in investing activities (586,797) (31,945)
----------------- -----------------
Cash Flows From Financing Activities:
Net (payments) proceedse in lines of credit (716,743) 619,743
Proceeds from issuances of stock, net of offering costs of $431,577 4,434,764 150,000
Payment to extend note (9,000) (9,000)
Proceeds from debt 1,833,300 -
Payments on notes payable and capital leases (2,373,268) (37,627)
----------------- -----------------
Net cash provided by financing activities 3,169,053 723,116
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 3,307,390 (103,147)
Cash and cash equivalents at beginning of period 209,670 312,817
----------------- -----------------
Cash and cash equivalents at end of period $ 3,517,060 $ $ 209,670
================= =================
See accompanying notes to consolidated financial statements.
33
|
Park City Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements June 30, 2006 and June 30, 2005
1. Summary of Significant Accounting Policies, Organization and Principles of Consolidation
Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which when realized have been within the range of management's expectations. The Company does not require collateral from its customers.
The Company's accounts receivable are derived from sales of products and services primarily to customers operating multi-location retail and grocery stores. At June 30, 2006, net accounts receivable includes amounts due from customers totaling $103,190.
During the year ended June 30, 2006, the Company received approximately $4.57 million of its revenue from new customers and approximately $2.5 million in revenue from existing customers for continued support and additional license sales.
During the years ended June 30, 2006 and 2005, the Company had sales to major customers that exceeded 10 percent of revenues are as follows:
2006 Customer A $3,547,185 2005 Customer B $489,045 Customer C $374,249 |
The Company also has an account receivable from a major customer as of June 30, 2006 as follows:
Customer D $141,623
Years
-----
Furniture and fixtures 7
Computer equipment 3
Equipment under capital leases 3
Leasehold improvements see below
|
Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life of the improvements.
Maintenance and support services that are sold with the initial license fee are recorded as deferred revenue and recognized ratably over the initial service period. Revenues from maintenance and other support services provided after the initial period are generally paid in advance and are recorded as deferred revenue and recognized on a straight-line basis over the term of the agreements.
Consulting service revenues are recognized in the period that the service is provided or in the period such services are accepted by the customer if acceptance is required by agreement.
ASP Services are sold, on a contractual bases, for one or more years. These fees are collected in advance of the services being performed and the revenue is recognized ratably over the respective months, as services are provided.
From inception through January 2001, the Company viewed the software as an evolving product. Therefore, all costs incurred for research and development of the Company's software products through January 2001 were expensed as incurred. During January 2001, technological feasibility of a major revision to the Company's Fresh Market Manager and the Company's ActionManager 4x development platform was established. Development costs for Fresh Market Manager software incurred from January 2001 through September 2002, totaling $1,063,515, were capitalized. These costs are being amortized on a straight-line basis over four years, beginning in September 2002 when the product was available for general release to customers. During 2006 and 2005, $265,876 of the capitalized development costs were amortized into expense each year.
In July 2005 the Company reached technological feasibility on 1 new product and 2 major enhancements to existing product offerings. During the period July 2005 through June 2006 the Company capitalized $613,717 of development costs associated with these products and enhancements. We anticipate these products being available for general release in the later part of FY2007. We will continue capitalization until that time.
The shares used in the computation of the Company's basic and diluted earnings per common share are reconciled as follows:
June 30, 2006 June 30, 2005
------------- -------------
Weighted average 6,084,000 5,489,000
Dilutive effect of options and warrants 179,000 -
---------- ---------
Weighted average shares outstanding
assuming dilution 6,263,000 5,489,000
========= =========
|
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123) which established financial accounting and reporting standards for stock-based compensation. The new standard defines a fair value method of accounting for an employee stock option or similar equity instrument. This statement gives entities the choice between adopting the fair value method or continuing to use the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25 with footnote disclosures of the pro forma effects if the fair value method had been adopted. The Company has opted for the latter approach.
Had compensation expense for the Company's option plan been determined based on fair value at the grant dates, as prescribed in SFAS No. 123 as amended by SFAS No. 148, the Company's net loss would have been as follows:
Year Ended Year Ended
June 30, June 30,
2006 2005
Net Income (Loss)
As reported $1,393,596 $(3,408,037)
Pro forma $1,113,946 $(4,038,715)
Income (loss) per common share-basic-as reported $0.23 $(0.62)
Income (loss) per common share-diluted-as reported $0.22 $(0.62)
Income (loss) per common share-basic-pro forma $0.18 $(0.74)
Income (loss) per common share-diluted-pro forma $0.18 $(0.74)
|
The weighted-average grant-date fair value of options granted during years ended June 30, 2006 and 2005 were $3.00 and $3.24 per share, respectively. The fair value for the options granted in 2006 and 2005 were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:
6/30/06 6/30/05
------- -------
Risk-free interest rate 4.34% - 5.16% 1.63% - 3.73%
Expected life (in years) 2 - 5 2 - 10
Expected volatility 369.58% 404.47%
Expected dividend yield 0.00% 0.00%
|
The following table summarizes information about fixed stock options and warrants outstanding at June 30, 2006:
Options and Warrants Outstanding Options and Warrants
at June 30, 2006 Exercisable at June 30, 2006
---------------- ----------------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of Outstanding at contractual exercise Exercisable at exercise
exercise prices June 30, 2006 life(years) price June 30, 2006 price
--------------- ------------- ----------- ----- ------------- -----
$1.50 - $2.50 558,318 1.62 $ 1.98 558,318 $ 1.98
$3.00 - $4.00 421,807 4.25 3.51 421,807 3.53
$7.00 10,000 0.36 7.00 10,000 7.00
------ ------
990,125 2.74 $ 2.69 990,125 $ 2.69
======= =======
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2. Liquidity
As shown in the consolidated financial statements for the fiscal year ended, June 30, 2006, the Company has achieved positive cash flow provided by operations in the amount of $725,134, compared to a ($794,318) cash deficit from operations in FYE 2005. Furthermore, during Fiscal Year Ending, June 30, 2006, the Company restructured its debt and equity portfolio, refinancing note payables and paying off a revolving line of credit from its net proceeds of issuing 3,636,364 shares of restricted common stock, as described under Item 1.01 of Form 8K date June 14, 2006. The total net proceeds to the company from this sale were approximately $4,570,000. The Company anticipates a comparative reduction in interest costs by approximately $800,000 during Fiscal Year Ending, June 30 2007.
In addition, the Company believes that cash flow from new business development and renewed contracts, as well as a reduction of liabilities from $8,772,879 to $3,344,826 combined with access to a $1.9 million revolving line of credit will provide the funds necessary to operate, and will allow the Company to fund its currently anticipated working capital, capital spending and debt service requirements during the year ended June 30, 2007.
For the year ended, June 30, 2006, the Company experienced a surge in revenue. The 95% increase in total comparative revenue, including seven new Supply Chain Profit Link business contracts that were initiated in 2006, the Company's anticipated release of SR5, and 2 new significant enhancements to existing products will provide current and future operating cash flows. The Company believes that anticipated revenue growth will allow the Company to meet its minimum operating cash requirements for Fiscal Year 2007. The financial statements do not reflect any adjustments should the Company's operations not be achieved.
Although the Company anticipates that it will meet its working capital requirements primarily through increased revenue, pay-downs on debt and other liabilities while controlling costs there can be no assurances that the Company will be able to meet its working capital requirements. Should the Company desire to raise additional equity or debt financing, there are no assurances that the Company could do so on acceptable terms.
3. Receivables
Trade accounts receivable consist of the following at June 30, 2006 and 2005:
2006 2005
---- ----
Trade accounts receivable $ 229,512 $ 383,214
Allowance for doubtful accounts (126,324) (56,000)
----------- -----------
$103,190 $327,214
=========== ===========
|
Unbilled receivables consists of amounts recognized as revenue during the year for which invoices were sent subsequent to June 30, 2006
4. Property and Equipment
Property and equipment are stated at cost and consist of the following at June 30, 2006 and 2005:
2006 2005
---- ----
Computer equipment $ 1,455,396 $ 1,408,546
Furniture and equipment 207,251 207,251
----------- -----------
Leasehold improvements 85,795 85,795
----------- -----------
1,748,442 1,701,592
Less accumulated depreciation and amortization (1,663,701) (1,592,080)
----------- -----------
$ 84,741 $ 109,512
=========== ===========
5. Capitalized software costs
Capitalized software costs consists of the following at June 30, 2006 and 2005:
2006 2005
---- ----
Capitalized software costs $ 1,677,234 $ 1,063,516
Less accumulated amortization (997,047) (731,167)
----------- -----------
$ 680,187 $ 332,349
=========== ===========
Estimated aggregate amortization expenses for each of the next five years
is as follows:
Year ending June 30:
2007 $ 66,470
2008 153,429
2009 153,430
2010 153,429
--------------
2011 $ 153,430
` ==============
6. Accrued Liabilities
Accrued liabilities consist of the following at June 30, 2006 and 2005:
2006 2005
---- ----
Accrued vacation $ 110,717 $ 112,722
Other accrued liabilities 55,160 32,684
Accrued compensation 59,185 156,300
Accrued board compensation 5,000 15,000
----------- -----------
$ 230,062 $ 316,706
=========== ===========
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7. Related party line of credit
In February 2006 the Company arranged an unsecured, revolving line of credit with Riverview Financial Corp, a wholly owned affiliate of the Company's CEO. The line bears interest at 12% with a fee for advances, and is repaid as funds availability permits. The line of credit expires on June 15, 2007. The limit on this line of credit is $800,000; there was no balance due at June 30, 2006.
8. Derivative Liability
In conjunction with raising capital through the issuance of convertible debt, the Company has issued various warrants that registration rights for the underlying shares. As the contracts must be settled by the delivery of registered shares and the delivery of the registered shares is not controlled by the Company, pursuant to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's own Stock," the net value of the warrants at the date of issuance was recorded as long-term derivative liability on the balance sheet as of June 21, 2006 ($455,111) and the change in fair value from the date of issuance to June 30, 2006 has been included in loss on derivative liability ($34,513).
9. Long-term notes payable
The Company had the following long-term notes payable at June 30, 2006 and 2005:
2006 2005
---- ----
Note payable to a Bank bearing interest at
6.7%, due March 31, 2008, secured by a
certificate of deposit issued by the same bank
in and held in the name of Riverview Financial
Corp., net of discount of $97,404 $1,842,596 $ -
Note payable to Riverview bearing interest at
12% compounding, due July 31, 2007, unsecured,
net of discount of $122,992 - 3,173,414
Capital lease obligation on computer
equipment, due in monthly installments of
$3,303 decreasing through December 2007,
imputed interest rates of 10.9% 21,722 25,286
----------- -----------
1,864,318 3,198,700
Less current portion of capital lease
obligations (16,774) (23,159)
----------- -----------
$1,847,544 $3,175,541
=========== ===========
|
Maturities of long-term debt at June 30, 2006 are as follows:
Year ending June 30:
2007 $ 21,722
2008 1,842,596
--------------
$ 1,847,544
==============
|
Capital Leases: Amortization expense related to capitalized leases is included in depreciation expense and was $29,350 and $25,926 for the years ended June 30, 2006 and 2005, respectively. Accumulated depreciation was $88,159 at June 30, 2006. This amortized depreciation expenses relates to $122,825 of equipment purchased under capital lease agreements of which $54,908 is still under capital lease at June 30, 2006.
10. Deferred Revenue
Deferred revenue consisted of the following at June 30, 2006 and 2005:
2006 2005
---- ----
License Sales $ 17,817 $ 17,817
Consulting Services 118,020 18,950
Maintenance and Support 512,849 846,658
---------- ----------
$ 648,686 $ 883,425
========== ==========
11. Income Taxes
|
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax liabilities consist of the following components as of June 30, 2006 and 2005:
2006 2005
-------------------- -------------------
Deferred tax assets:
NOL Carryover $ 2,032,290 $ 4,250,000
Depreciation 58,260 52,000
Allowance for Bad Debts 57,655 22,000
Accrued Expenses 296,165 389,000
Deferred tax liabilities
Valuation allowance (2,444,370) (4,713,000)
-------------------- -------------------
Net deferred tax asset $ - $ -
==================== ===================
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended June 30, 2006 and 2005 due to the following:
2006 2005
-------------------- -------------------
Book Income $ 543,310 $ (1,329,000)
Stock for Services 128,960
Life Insurance 34,220
Meals & Entertainment 5,065
NOL Utilization (711,555)
Other 31,000
Valuation allowance - 1,298,000
-------------------- -------------------
$ - $ -
==================== ===================
|
At June 30, 2006, the Company had net operating loss carryforwards of approximately $5,200,000 that may be offset against future taxable income from the year 2006 through 2026. No tax benefit has been reported in the June 30, 2006 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
12. Supplemental Disclosure of Cash Flow Information
Interest paid during the years ended June 30, 2006 and 2005 was $1,177,320 and $460,085, respectively. No income taxes were paid during the years ended June 30, 2006 or 2005.
Non-Cash Transactions Disclosure for the Years Ended June 30, 2006 and 2005:
2006 2005
---- ----
Common stock issued for debt refinancing $ 15,750 $15,750
Common stock issued for debt conversion $3,473,606 $ -
Property and Equipment purchased by capital lease $ 24,703 $35,345
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13. Commitments and Contingencies.
The Company has entered into a lease at 3160 Pinebrook Drive, Park City, UT, 84098 and anticipates relocating to the new facility on or about November 1, 2006, possession to be determined by timing of build-out of leasehold improvements. The Company will lease approximately 10,000 square feet for a period of 3 years, with an option to renew for an additional 3 year increments. Monthly rent is $11,438 with annual increases of 3%.
14. Employee Benefit Plan
The Company offers an employee benefit plan under Benefit Plan Section 401(k) of the Internal Revenue Code. Employees who have attained the age of 21 are eligible to participate. The Company, at its discretion, matches 50% of the first 4% of each employee's contributions. The Company currently does not match employee contributions. There were no expenses for the years ended June 30, 2006 and 2005.
15. Stock Compensation Plans
Stock in Lieu of Cash Compensation. Beginning October 1, 2002, officers and management of the Company received a portion of their compensation in common stock of the Company. The number of shares was calculated based on the fair value of the shares at the end of each payroll period, with a floor price of $2.50 per share. During the year ended June 30, 2006 46,893 shares were issued with a fair value of $139,473.
Officers and Directors Stock Compensation. In February 2004 to be effective
January 2004, the Board of Directors approved the following compensation for
directors who are not employed by the Company.
o Annual cash compensation of $10,000 payable at the rate of $2,500
per quarter. The Company has the right to pay this amount in the
form of shares of common stock of the Company.
o Annual options to purchase $20,000 of the Company restricted common
stock at the market value of the shares on the date of the grant,
which is to be the first day the stock market is open in January of
each year.
o Reimbursement of all travel expenses related to performance of
Directors duties on behalf of the Company.
As of June 30, 2006 there were outstanding to directors fully vested options outstanding to purchase 53,334 common shares at $2.00 - $7.00 per share, and expiring at various dates through January 2008.
Officers, Key Employees, Consultants and Directors Stock Compensation In January 2000, the Company entered into a non-qualified stock option & stock incentive plan. Officers, key employees, consultants and directors of the Company are eligible to participate. The maximum aggregate number of shares which may be granted under this plan was originally 20,000 and was subsequently amended to 40,000 on March 8, 2000. The plan is administered by a Committee. The exercise price for each share of common stock purchasable under any incentive stock option granted under this plan shall be not less than 100% of the fair market value of the common stock, as determined by the stock exchange on which the common stock trades on the date of grant. If the incentive stock option is granted to a shareholder who possesses more than 10% of the Company's voting power, then the exercise price shall be not less than 110% of the fair market value on the date of grant. Each option shall be exercisable in whole or in installments as determined by the Committee at the time of the grant of such options. All incentive stock options expire after 10 years. If the incentive stock option is held by a shareholder who possesses more than 10% of the Company's voting power, then the incentive stock option expires after five years. If the option holder is terminated, then the incentive stock options granted to such holder expire no later than three months after the date of termination. For options holders granted incentive stock options exercisable for the first time during any fiscal year and in excess of $100,000 (determined by the fair market value of the shares of common stock as of the grant date), the excess shares of common stock shall not be deemed to be purchased pursuant to incentive stock options.
A schedule of the options and warrants at June 30, 2006 and 2005 is as follows:
Number of
Options Warrants Price per Share
Outstanding at July 1, 2004 66,181 1,437,224 $1.50-37.50
Granted 85,980 128,571 $1.50-3.50
Exercised - - -
Called - - -
Cancelled (21,020) (10,500) $1.50-4.00
Expired (22,210) (611,465) $2.00-37.50
-------- --------- -----------
Outstanding at June 30, 2005 108,931 943,830 $1.50-7.00
Granted 13,334 261,818 $3.00-3.65
Exercised - (58,572) $2.00
Called - - -
Cancelled - - -
Expired (28,977) (250,239) $1.50-4.00
-------- --------- ----------
Outstanding at June 30, 2006 93,288 896,837 $1.50-7.00
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16. Related Party Transactions
In March 2006, the Company obtained a Note Payable from a bank in the amount of $1,940,000. Riverview Financial Corporation (Riverview), a wholly owned affiliate of the Company's CEO, currently is the guarantor on this note payable and receives a fee of 3% of the outstanding balance of the note payable as consideration for the guarantee. See note 9.
The Company has a revolving Line of Credit with Riverview to cover short term cash needs pursuant to a promissory note payable. The credit facility has a maximum draw amount of $800,000 and bears interest at 12% with a fee for advances. Repayments are made as funds are available, with a due date of June 15, 2007. See note 7.
The Company had a note payable to Riverview Financial Corporation (Riverview), in the principal amount of $3,296,406 at June 30, 2005 with accrued interest of $841,995. In March 2006 the note payable and accrued interest of $294,334 were converted to 1,324,693 shares of common stock. See Note 12.
Riverview had loaned the Company $345,000 under a note payable bearing interest at 18% and an extended due date of December 2006. The loan was retired with cash proceeds from a note payable funding from a bank in March 2006.
17. Subsequent Events
In July 2006, the Company filed an amendment to its articles of incorporation in the state of Nevada in order to effect a 1 for 50 reverse split and reduce the number of common shares authorized from 500,000,000 to 50,000,000. The split had an effective date of August 11th 2006. See exhibit 3.4 incorporated herein by reference. All references to common stock have been retroctively restated.
In September 2006, the Company entered into a lease at 3160 Pinebrook Drive, Park City, UT, 84098 and anticipates relocating to the new facility on or about November 1, 2006, possession to be determined by timing of build-out of leasehold improvements. The Company will lease approximately 10,000 square feet for a period of 3 years, with an option to renew for an additional 3 year increments.
18. Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R (revised 2004) "Share-Based Payment." SFAS No. 123R requires employee stock-based compensation to be measured based on the grant-date fair value of the awards and the cost to be recognized over the period during which an employee is required to provide service in exchange for the award. The Statement eliminates the alternative use of Accounting Principles Board (APB) No. 25's intrinsic value method of accounting for awards, which is the Company's accounting policy for stock options. See Note 1 to the Consolidated Financial Statements for the pro forma impact of compensation expense from stock options on net earnings and earnings per share. SFAS No. 123R is effective for the Company's fiscal year beginning July 1, 2006. The Company will adopt the provisions of SFAS No. 123R on a prospective basis. The financial statement impact will be dependent on future stock-based awards and any unvested stock options outstanding at the date of adoption.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Correction - a replacement of APB No. 20 and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47) "Accounting for Conditional Asset Retirement Obligations, an Interpretation of FASB Statement No. 143." This Interpretation clarifies that a conditional retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The liability should be recognized when incurred, generally upon acquisition, construction or development of the asset. FIN 47 is effective no later than the end of the fiscal years ending after December 15, 2005. The Company is in the process of evaluating the impact of FIN 47 but does not expect the adoption to have a material impact on the financial statements.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between Park City Group, Inc., a Delaware corporation (the "Company") and Randall K. Fields ("Employee"), effective January 1, 2005.
Recitals:
A. Employee is employed by and provides sales and management services to the Company.
B. This Agreement is made to protect the Company's legitimate and legally protectible property and business interests.
C. This Agreement is entered into as a term and condition of Employee's employment with the Company.
D. This Agreement amends and replaces that certain Employment Agreement between the parties hereto dated July 1, 2003.
Agreements:
NOW, THEREFORE, in consideration of the mutual covenants and promises contained in, and the mutual benefits to be derived from this Agreement, and for other good and valuable consideration, the Company and Employee agree as follows:
1. Employment.
The Company hereby employs Employee, and Employee hereby accepts such employment, on the terms and conditions of this Agreement.
2. Term of the Employment.
The employment of Employee by the Company will continue pursuant to the terms of this Agreement as of January 1, 2005 and end on the 30th day of June, 2008 (the "Initial Term"), unless sooner terminated pursuant to the terms hereof or extended at the sole discretion of the Company's Board of Directors. The Initial Term and any subsequent terms will automatically renew for additional one year periods unless, six months prior to the expiration of the then current term, either party gives notice to the other that the Agreement will not renew for an additional term. In the event of such written notice being timely provided by the Company, Employee shall not be required to perform any responsibilities or duties to the Company during the final two months of the then-existing term. In such event, the Company will remain obligated to Employee for all compensation and other benefits set forth herein and in any written modifications hereto.
3. Duties.
(a) General Duties. Employee shall be employed as the Sales Department Manager of the Company, and shall have such duties, responsibilities and obligations as are established by the Bylaws of the Company or are generally required of persons employed in similar positions.
(b) Performance. To the best of his ability and experience, Employee will at all times loyally and conscientiously perform all duties, and discharge all responsibilities and obligations, required of
and from him pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the Company. Employee shall devote as much of his time, energy, skill and attention to the business of the Company, and the Company shall be entitled to all of the benefits and profits arising from or incident to all such work, services, and advice of Employee rendered to the Company.
(c) Company Directorship. Employee shall be elected to the position of director and shall serve on the Company's Board of Directors during his term of employment as Chairman.
(d) Other Directorships and Businesses. During the term of his Employment, Employee may serve on the boards of directors or on advisory boards of other companies or engage in other business relationships, so long as such service does not interfere or conflict with the performance of Employee's duties hereunder, and provided further that Employee will not serve on the boards of directors or on advisory boards of companies which are direct competitors of the Company.
(e) Outside Activities. Nothing in this Agreement shall prohibit Employee from directing his personal investments or accepting speaking or presentation engagements in exchange for honoraria, or from rendering services to, or serving on boards of, charitable organizations, so long as such activities do not interfere or conflict with the performance of Employee's duties hereunder.
4. Compensation and Benefits.
(a) Salary. The Company shall pay to Employee an annual base salary of $50,000 ("Annual Base Salary"). The Annual Base Salary, which shall be pro-rated for any partial employment period, will be payable in equal bi-weekly installments or at such other intervals as may be established for the Company's customary payroll schedule, less all applicable federal, state and local income and employment tax withholdings required by law.
(b) Other Benefits. The Company acknowledges that the Employee conducts a considerable amount of business activities from Employee's personal residence. Accordingly, the Company shall pay the costs of maintaining a telephone line and system for business use, along with related costs, at the Employee's residence. In addition, the Company shall also provide the Employee with a computer and other equipment deemed necessary for the Employee to conduct necessary business activities from Employee's personal residence
The Company also acknowledges that the Employee's secretary performs limited personal accounting and other related services for the Employee. The Company hereby authorizes such activities so long as they do not interfere with Employee's secretary services to the Company. Should Employee retain someone else to perform personal accounting services, the Company shall bear the cost of such services.
(c) Benefit and Stock Option Plans. Employee shall be entitled to participate, to the extent of Employee's eligibility, in any employee benefit and stock option plans made available by the Company to its employees during the term of this Agreement. In addition, at no cost to Employee, Company will provide Employee, and his immediate family members , coverage under a health and dental insurance plan during the term of Employee's employment and any applicable COBRA coverage period.
(d) Vacations, Holidays, etc. Employee shall have four (4) weeks paid vacation and twelve (12) days sick leave during each year he is employed.
(e) Indemnification; D&O Insurance. The Company shall indemnify the Employee to the fullest extent of that which is available under Chapter 78 of the Nevada Revised Statutes, and shall provide director's and officer's insurance with such coverages, in such amounts and from such insurers as constitutes good practices by comparable companies in the same business as the Company. Such insurance shall provide defense and coverage obligations for any claim arising out of Employee's acts or omissions committed during the Initial Term or any subsequent term hereof, regardless of when such claims are asserted.
(f) Incentive Bonus. An incentive bonus, based upon the Company's achievement of performance goals shall be paid to Employee. The goals will be pre-determined each year by the Compensation Committee of the Board of Directors in discussion with Employee.
(g) Travel and Business Expense Reimbursement. The Company shall promptly reimburse Employee for all of his reasonable business expenses.
5. Proprietary Information.
(a) Obligation. Employee shall not disclose, publish, disseminate, reproduce, summarize, distribute, make available or use any Proprietary Information, except in pursuance of Employee's duties, responsibilities and obligations under this Agreement and for the benefit of the Company.
(b) Definition. As used in this Agreement, "Proprietary Information" means information that is (i) designated as "confidential," "proprietary" or both by the Company or should have been known to be "confidential" or "proprietary" to the Company from the nature of the information or the circumstances of its disclosure, and (ii) has economic value or affords commercial advantage to the Company because it is not generally known or readily ascertainable by proper means by other persons. By way of illustration, Proprietary Information includes but is not limited to information relating to the Company's products, services, business operations, business plans and financial affairs, and customers; any application, utility, algorithm, formula, pattern, compilation, program, device, method, technique, process, idea, concept, know-how, flow chart, drawing, standard, specification, or invention; and any tangible embodiment of Proprietary Information that may be provided to or generated by Employee.
(c) Return upon Termination. Upon the termination of this Agreement for any reason, and at any time prior thereto upon request by the Company, Employee shall return to the Company all tangible embodiments of any Proprietary Information in Employee's possession, including but not limited to, originals, copies, reproductions, notes, memoranda, abstracts, and summaries.
(d) Ownership. Any Proprietary Information developed or conceived by Employee during the term of this Agreement shall be and remain the sole property of the Company. Employee agrees promptly to communicate and disclose all such Proprietary Information to the Company and to execute and deliver to the Company any instruments deemed necessary by the Company to perfect the Company's rights in such Proprietary Information.
6. Termination of Employment.
(a) Additional Definitions. For purposes of this Agreement, the following terms shall have the meanings assigned below:
(i) "Cause" means (A) conviction of a crime involving moral turpitude, or (B) a determination by the Board of Directors of the Company in good faith that Employee [1] has failed to substantially perform his duties in his then current position, [2] has engaged in grossly negligent, dishonest or unethical activity, or [3] has breached a fiduciary duty or a covenant hereunder, including without limitation the unauthorized disclosure of Company trade secrets or confidential information, resulting in material loss or damage to the Company.
(ii) "Change in Control of the Company" means a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), if the Company were subject to such reporting requirements; provided that, without limitation, such a change in control shall be deemed to have occurred if any "person" (as such term is used in paragraph 13(d) and 14(d) of the Exchange Act) who on the date hereof is not a director or officer of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities.
(iii) "Determination Date" means (A) if Employee's
employment is terminated by his death, the date of his death,
(B) if Employee's employment is terminated by reason of
Disability, thirty (30) days after Notice of Termination is
given, provided that Employee shall not have returned to the
performance of his duties during such thirty (30) day period,
(C) if Employee's employment is terminated by reason of a
Change in Control of the Company, the date specified in the
Notice of Termination, (D if Employee's employment is
terminated for Cause by reason of conviction of a crime
involving moral turpitude, the date on which a Notice of
Termination is given, or (E) if Employee's employment is
terminated for Cause for a reason other than specified in (D),
thirty (30) days after Notice of Termination is given,
provided that Employee shall not have cured the reason for
such Cause during such thirty (30) day period.
(iv) "Disability" means (A) Employee's inability, by reason of physical or mental illness or other cause, to perform Employee's duties hereunder on a full-time basis for a period of twenty-six (26) consecutive weeks, or (B) in the discretion of the Board of Directors, as such term is defined in any disability insurance policy in effect at the Company during the time in question.
(v) "Good Reason" means a failure by the Company to comply with any material provision of this Agreement which has not been cured within ten (10) days after notice of such noncompliance has been given by Employee to the Company.
(vi) "Notice of Termination" means a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated. Any termination of Employee's employment by the Company or by Employee (other than termination pursuant to subsection 6(b) hereof) shall be communicated by written Notice of Termination to the other party hereto.
(b) Termination on Employee's Death. Employee's employment hereunder shall terminate upon Employee's death. Upon such termination, Employee's representative or estate shall be entitled to receive only the compensation, benefits and reimbursement earned or accrued by Employee under the terms of his employment prior to the Determination Date, but shall not be entitled to any further compensation, benefits, or reimbursement subsequent to such date.
(c) Termination By The Company for Employee's Disability. Employee's employment hereunder may be terminated without breach of this Agreement upon Employee's Disability, upon written Notice of Termination from the Company to Employee and Employee's failure to return to the performance of his duties as provided in Section 6(a)(iii)(B) hereof. Employee shall receive full compensation, benefits, and reimbursement of expenses pursuant to the terms of his employment from the date Disability begins until the Determination Date specified in the Notice of Termination given under this section, or until Employee begins to receive disability benefits pursuant to a Company disability insurance policy, whichever occurs first.
(d) Termination By The Company For Cause. Employee's
employment hereunder may be terminated without breach of this Agreement
for Cause, upon written Notice of Termination from the Company to
Employee and Employee's failure to cure such Cause as provided in
Section 6(a)(iii)(E) hereof. If Employee's employment is terminated for
Cause, the Company shall pay Employee his full Annual Base Salary
accrued through the Determination Date, and the Company shall have no
further obligation to Employee under this Agreement for other
compensation or benefits accrued but unpaid prior to the Determination
Date.
(e) Termination On Change of Control of the Company. Employee's employment hereunder may be terminated without breach of this Agreement at any time within twelve months following a Change in Control of the Company at the election of the Employee. If the Employee's employment pursuant to this Section 6(e) is terminated, Employee shall be entitled to receive the compensation, benefits and reimbursement earned or accrued by Employee under the terms of his employment prior to the Determination Date, including any incentive bonus. In addition, Employee shall receive as a severance payment the balance of Employee's compensation through the end of the then current term of this Agreement. Also, upon Employees termination in connection with this Section 6(e), Employee shall be entitled to an annual bonus for the remaining period of this contract equal to the bonus due to Employee for the immediately preceding fiscal year. Employee's employment hereunder may not be terminated by the Company following a Change in Control of the Company without it being a breach of this Agreement.
(f) Termination by Employee. Employee may terminate his employment hereunder for Good Reason or if his health should become impaired to an extent that makes his continued performance of his duties hereunder hazardous to his physical or mental health or his life, provided that Employee shall have furnished the Company with a written statement from a qualified doctor to such effect and, provided further, that, at the Company's request, Employee shall submit to an examination by a doctor selected by the Company and such doctor shall have concurred in the conclusion of Employee's doctor. If Employee shall terminate his employment pursuant to this Section 6(f), Employee shall be entitled to receive the following:
(i) the compensation, benefits and reimbursement earned or accrued by Employee under the terms of his employment prior to the Determination Date, including any incentive bonus,
(ii) if Employee shall terminate his employment for
Good Reason consisting of the Company's material breach of
this Agreement, severance, including bonuses, as defined in
Section 6 (e) shall be due and payable to Employee.
7. Miscellaneous.
(a) Severability. If any provision of this Agreement is found to be unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless remain in full force and effect.
(b) Notices. Any notice required or permitted hereunder to be given by either party shall be in writing and shall be delivered personally or sent by certified or registered mail, postage prepaid, or by private courier, or by facsimile or telegram to the party to the address the party may designate from time to time. A notice delivered personally shall be effective upon receipt. A notice sent by facsimile or telegram shall be effective 24 hours after the dispatch thereof. A notice delivered by mail or by private courier shall be effective on the 3rd day after the day of mailing. A copy of notices given hereunder will be delivered or sent to the following persons and addresses (or such other address as designated from time to time):
(c) Attorney's Fees. In the event of any action at law or equity to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and court costs in addition to any other relief to which such party may be entitled.
(d) Governing Law. This Agreement shall be interpreted, construed, governed and enforced according to the laws of the State of Utah. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain in full force and effect.
(e) Successors and Assigns. The rights and obligations of the Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. This Agreement is for the unique personal services of Employee, and Employee shall not be entitled to assign any of his rights or obligations hereunder.
(f) Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the employment of Employee. This Agreement can be amended or modified only in a writing signed by Employee and an authorized representative of the Company.
(g) Signature by Facsimile and Counterpart. This Agreement may be executed in counterpart, and facsimile signatures are acceptable and binding on the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written.
"Company" "Employee" PARK CITY GROUP, INC., a Delaware corporation By:__________________________________________ ______________________________ Name:________________________________________ Name: Randall K. Fields Title:_______________________________________ |
EMPLOYMENT AGREEMENT
Agreement made, effective as of December 28, 2005, by and between Park City Group Inc., a corporation organized and existing under the laws of the State of Nevada, with its principal office located at 333 Main Street, Park City, Utah, referred to in this agreement as employer, and William Ruby, of _________________________, Washington, referred to in this agreement as employee.
RECITALS
A. Employer is engaged in the business of Software Development and Business Consulting.
B. Employee has been engaged in and is experienced in the above-designated type of business.
C. Employee is willing to be employed by employer, and employer is willing to employ employee, on the terms, covenants, and conditions set forth in this agreement.
In consideration of the matters described above, and of the mutual benefits and obligations set forth in this agreement, the parties agree as follows:
SECTION ONE.
EMPLOYMENT
A. Employer employs, engages, and hires employee to be responsible for driving revenue by focusing on our existing customer accounts and assisting with any new accounts where you might be of help, as needed. Employee accepts and agrees to such hiring, engagement, and employment, subject to the general supervision and pursuant to the orders, advice, and direction of employer.
B. Employee shall perform such duties as are customarily performed by one holding such position in other, same, or similar businesses or enterprises as that engaged in by employer, and shall also additionally render such other and unrelated services and duties as may be assigned to him from time to time by employer.
SECTION TWO. BEST EFFORTS OF EMPLOYEE
Employee agrees that he will at all times faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms of this agreement, to the reasonable satisfaction of employer.
SECTION THREE. TERM OF EMPLOYMENT
The term of this agreement shall be a period of four years, commencing December 28, 2005 and terminating December 27, 2009, subject, however, to prior termination as provided in this agreement. Beginning December 28, 2009 this agreement shall be considered renewed for regular periods of one year, provided neither party submits a notice of termination.
SECTION FOUR. COMPENSATION OF EMPLOYEE
Employer shall pay employee, and employee shall accept from employer, in full payment for employee's services under this agreement, compensation at the rate of $140,000 per year, payable twice a month on the 15th and last day of each month while this agreement shall be in force.
Employer shall reimburse employee for all necessary expenses incurred by employee while traveling pursuant to employer's directions.
SECTION FIVE.
TERMINATION DUE TO DISCONTINUANCE OF BUSINESS
In spite of anything contained in this agreement to the contrary, in the event that employer shall discontinue operating its business, this agreement shall terminate as of the last day of the month in which employer ceases operations with the same force and effect as if such last day of the month were originally set as the termination date of this agreement.
SECTION SIX. OTHER EMPLOYMENT
Employee shall devote all of his knowledge and skills solely to the business and interest of employer, and employer shall be entitled to all of the benefits, profits, or other issues arising from or incident to all work, services, and advice of employee, and employee shall not, during the term of this agreement, be interested directly or indirectly, in any manner, as partner, officer, director, shareholder, advisor, employee, or in any other capacity in any other business similar to employer's business or any allied trade; provided, however, that nothing contained in this section shall be deemed to prevent or to limit the right of employee to invest any of his money in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything contained in this section be deemed to prevent employee from investing or limit employee's right to invest his money in real estate.
SECTION SEVEN.
RECOMMENDATIONS FOR IMPROVING OPERATIONS
Employee shall make available to employer information of which employee shall have any relevant knowledge and shall make suggestions and recommendations that will be of mutual benefit to employer and employee.
SECTION EIGHT.
TRADE SECRETS
Employee shall not at any time or in any manner, either directly or indirectly, other than in the course of completing his normal business activity, divulge, disclose or communicate to any person, firm, corporation, or other entity in any manner whatsoever any information concerning any matters affecting or relating to the business of employer, including but not limited to any of its customers, the prices it obtains or has obtained from the sale of, or at which it sells or has sold, its products, or any other information concerning the business of employer, its manner of operation, its plans, processes, or other data without regard to whether all of the above-stated matters will be deemed confidential, material, or important, employer and employee specifically and expressly stipulating that as between them, such matters are important, material, and confidential and gravely affect the effective and successful conduct of the business of employer, and employer's good will, and that any breach of the terms of this section shall be a material breach of this agreement.
SECTION NINE.
TRADE SECRETS AFTER TERMINATION OF EMPLOYMENT
All of the terms of Section Eight of this agreement shall remain in full force and effect for the period of two years after the termination of employee's employment for any reason.
SECTION TEN. ADDITIONAL COMPENSATION
Employee will receive a signing bonus of 714,288 shares of Company Stock that will vest at a rate of 25% or 178,572 shares per year for four years.
Employee will participate in the companies Senior Executive Bonus Plan.
Employee shall also be granted stock options for two (2) shares of stock for each share of stock that is purchased and paid for in cash during the first two years of employment. These options will be issued at the current stock price at the time of issuance.
SECTION ELEVEN AGREEMENTS OUTSIDE OF CONTRACT
This agreement contains the complete agreement concerning the employment arrangement between the parties and shall, as of the effective date of this agreement, supersede all other agreements between the parties. The parties stipulate that neither of them has made any representation with respect to the subject matter of this agreement or any representations including the execution and delivery of this agreement except such representations as are specifically set forth in this agreement, and each of the parties acknowledges that each party has relied on its own judgment in entering into this agreement. The parties further acknowledge that any payments or representations that may have been made by either of them to the other prior to the date of executing this agreement are of no effect and that neither of them has relied on such payments or representations in connection with their dealings with the other.
SECTION TWELVE.
VACATION
Employee shall be entitled to ten days of paid vacation each year during the term of this agreement, the time for such vacation to be determined by mutual agreement between employer and employee.
SECTION THIRTEEN. MODIFICATION OF AGREEMENT
Any modification of this agreement or additional obligation assumed by either party in connection with this agreement shall be binding only if evidenced in writing and signed by each party or an authorized representative of each party.
SECTION FOURTEEN.
TERMINATION
A. This agreement may be terminated by either party on thirty (30) days written notice to the other. If employer shall so terminate this agreement, employee shall be entitled to severance pay equivalent to his regular pay for five (5) days, for each year of service to the company.
B. In the event of any violation by any party of any of the terms of this agreement, any party may terminate employment without notice and with compensation to employee only to the date of such termination, with the exception of any accrued vacation time owed to employee. C. It is further agreed that any breach or evasion of any of the terms of this agreement by either party will result in immediate and irreparable injury to the other party and will authorize recourse to injunction and or specific performance as well as to all other legal or equitable remedies to which such injured party may be entitled under this agreement.
SECTION FIFTEEN. EFFECT OF PARTIAL INVALIDITY
The invalidity of any portion of this agreement will not and shall not be deemed to affect the validity of any other provision. In the event that any provision of this agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed to be in full force and effect as if both parties subsequent to the expungement of the invalid provision had executed them.
SECTION SIXTEEN.
CHOICE OF LAW
It is the intention of the parties to this agreement that this agreement and the performance under this agreement, and all suits and special proceedings under this agreement, be construed in accordance with and under and pursuant to the laws of the State of Utah and that, in any action, special proceeding or other proceeding that may be brought arising out of, in connection with, or by reason of this agreement, the laws of the State of Utah shall be applicable and shall govern to the exclusion of the law of any other forum, without regard to the jurisdiction in which any action or special proceeding may be instituted.
SECTION SEVENTEEN.
NO WAIVER
The failure of either party to this agreement to insist upon the performance of any of the terms and conditions of this agreement, or the waiver of any breach of any of the terms and conditions of this agreement, shall not be construed as thereafter waiving any such terms and conditions, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred.
SECTION EIGHTEEN.
ATTORNEY FEES
In the event that any action is filed in relation to this agreement, the unsuccessful party in the action shall pay to the successful party, in addition to all the sums that either party may be called on to pay, a reasonable sum for the successful party's attorney's fees.
SECTION NINETEEN. PARAGRAPH HEADINGS
The titles to the paragraphs of this agreement are solely for the convenience of the parties and shall not be used to explain, modify, simplify, or aid in the interpretation of the provisions of this agreement.
In witness of the above, each party to this agreement has caused it to be executed as of the date set forth above.
EMPLOYEE PARK CITY GROUP, INC.
By: _________________________
-----------------------------
its___________________________
|
EMPLOYMENT AGREEMENT
Agreement made, effective as of January 1, 2006, by and between Park City Group Inc., a corporation organized and existing under the laws of the State of Nevada, with its principal office located at 333 Main Street, Park City, Utah, referred to in this agreement as employer, and Patrick Paterson, of _________________________, Utah, referred to in this agreement as employee.
RECITALS
A. Employer is engaged in the business of Software Development and Business Consulting.
B. Employee has been engaged in and is experienced in the above-designated type of business.
C. Employee is willing to be employed by employer, and employer is willing to employ employee, on the terms, covenants, and conditions set forth in this agreement.
In consideration of the matters described above, and of the mutual benefits and obligations set forth in this agreement, the parties agree as follows:
SECTION ONE.
EMPLOYMENT
A. Employer employs, engages, and hires employee to be primarily responsible for driving the marketing function at Park City Group. Employee accepts and agrees to such hiring, engagement, and employment, subject to the general supervision and pursuant to the orders, advice, and direction of employer.
B. Employee shall perform such duties as are customarily performed by one holding such position in other, same, or similar businesses or enterprises as that engaged in by employer, and shall also additionally render such other and unrelated services and duties as may be assigned to him from time to time by employer.
SECTION TWO.
BEST EFFORTS OF EMPLOYEE
Employee agrees that he will at all times faithfully, industriously, and to the best of his ability, experience, and talents, perform all of the duties that may be required of and from him pursuant to the express and implicit terms of this agreement, to the reasonable satisfaction of employer.
SECTION THREE.
TERM OF EMPLOYMENT
The term of this agreement shall be a period of four years, commencing January 1, 2006 and terminating December 31, 2009, subject, however, to prior termination as provided in this agreement. Beginning January 1, 2010 this agreement shall be considered renewed for regular periods of one year, provided neither party submits a notice of termination.
SECTION FOUR.
COMPENSATION OF EMPLOYEE
Employer shall pay employee, and employee shall accept from employer, in full payment for employee's services under this agreement, compensation at the rate of $90,000 per year, payable twice a month on the 15th and last day of each month while this agreement shall be in force.
Employer shall reimburse employee for all necessary expenses incurred by employee while traveling pursuant to employer's directions.
SECTION FIVE.
TERMINATION DUE TO DISCONTINUANCE OF BUSINESS
In spite of anything contained in this agreement to the contrary, in the event that employer shall discontinue operating its business, this agreement shall terminate as of the last day of the month in which employer ceases operations with the same force and effect as if such last day of the month were originally set as the termination date of this agreement.
SECTION SIX.
OTHER EMPLOYMENT
Employee shall devote all of his knowledge and skills solely to the business and interest of employer, and employer shall be entitled to all of the benefits, profits, or other issues arising from or incident to all work, services, and advice of employee, and employee shall not, during the term of this agreement, be interested directly or indirectly, in any manner, as partner, officer, director, shareholder, advisor, employee, or in any other capacity in any other business similar to employer's business or any allied trade; provided, however, that nothing contained in this section shall be deemed to prevent or to limit the right of employee to invest any of his money in the capital stock or other securities of any corporation whose stock or securities are publicly owned or are regularly traded on any public exchange, nor shall anything contained in this section be deemed to prevent employee from investing or limit employee's right to invest his money in real estate.
SECTION SEVEN.
RECOMMENDATIONS FOR IMPROVING OPERATIONS
Employee shall make available to employer information of which employee shall have any relevant knowledge and shall make suggestions and recommendations that will be of mutual benefit to employer and employee.
SECTION EIGHT.
TRADE SECRETS
Employee shall not at any time or in any manner, either directly or indirectly, other than in the course of completing his normal business activity, divulge, disclose or communicate to any person, firm, corporation, or other entity in any manner whatsoever any information concerning any matters affecting or relating to the business of employer, including but not limited to any of its customers, the prices it obtains or has obtained from the sale of, or at which it sells or has sold, its products, or any other information concerning the business of employer, its manner of operation, its plans, processes, or other data without regard to whether all of the above-stated matters will be deemed confidential, material, or important, employer and employee specifically and expressly stipulating that as between them, such matters are important, material, and confidential and gravely affect the effective and successful conduct of the business of employer, and employer's good will, and that any breach of the terms of this section shall be a material breach of this agreement.
SECTION NINE.
TRADE SECRETS AFTER TERMINATION OF EMPLOYMENT
All of the terms of Section Eight of this agreement shall remain in full force and effect for the period of two years after the termination of employee's employment for any reason.
SECTION TEN.
ADDITIONAL COMPENSATION
Provided employee remains employed by employer, employee will receive a signing bonus of 714,288 shares of Company Stock that will vest at a rate of 25% or 178,572 shares per year for four years.
Employee will participate in the companies Senior Executive Bonus Plan.
Employee shall also be granted stock options for two (2) shares of stock for each share of stock that is purchased and paid for in cash during the first two years of employment. These options will be issued at the current stock price at the time of issuance.
SECTION ELEVEN
AGREEMENTS OUTSIDE OF CONTRACT
This agreement contains the complete agreement concerning the employment arrangement between the parties and shall, as of the effective date of this agreement, supersede all other agreements between the parties. The parties stipulate that neither of them has made any representation with respect to the subject matter of this agreement or any representations including the execution and delivery of this agreement except such representations as are specifically set forth in this agreement, and each of the parties acknowledges that each party has relied on its own judgment in entering into this agreement. The parties further acknowledge that any payments or representations that may have been made by either of them to the other prior to the date of executing this agreement are of no effect and that neither of them has relied on such payments or representations in connection with their dealings with the other.
SECTION TWELVE.
VACATION
Employee shall be entitled to ten days of paid vacation each year during the term of this agreement, the time for such vacation to be determined by mutual agreement between employer and employee.
SECTION THIRTEEN.
MODIFICATION OF AGREEMENT
Any modification of this agreement or additional obligation assumed by either party in connection with this agreement shall be binding only if evidenced in writing and signed by each party or an authorized representative of each party.
SECTION FOURTEEN.
TERMINATION
A. This agreement may be terminated by either party on thirty (30) days written notice to the other. If employer shall so terminate this agreement, employee shall be entitled to severance pay equivalent to his regular pay for five (5) days, for each year of service to the company.
B. In the event of any violation by any party of any of the terms of this agreement, any party may terminate employment without notice and with compensation to employee only to the date of such termination, with the exception of any accrued vacation time owed to employee.
C. It is further agreed that any breach or evasion of any of the terms of this agreement by either party will result in immediate and irreparable injury to the other party and will authorize recourse to injunction and or specific performance as well as to all other legal or equitable remedies to which such injured party may be entitled under this agreement.
SECTION FIFTEEN.
EFFECT OF PARTIAL INVALIDITY
The invalidity of any portion of this agreement will not and shall not be deemed to affect the validity of any other provision. In the event that any provision of this agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed to be in full force and effect as if both parties subsequent to the expungement of the invalid provision had executed them.
SECTION SIXTEEN.
CHOICE OF LAW
It is the intention of the parties to this agreement that this agreement and the performance under this agreement, and all suits and special proceedings under this agreement, be construed in accordance with and under and pursuant to the laws of the State of Utah and that, in any action, special proceeding or other proceeding that may be brought arising out of, in connection with, or by reason of this agreement, the laws of the State of Utah shall be applicable and shall govern to the exclusion of the law of any other forum, without regard to the jurisdiction in which any action or special proceeding may be instituted.
SECTION SEVENTEEN.
NO WAIVER
The failure of either party to this agreement to insist upon the performance of any of the terms and conditions of this agreement, or the waiver of any breach of any of the terms and conditions of this agreement, shall not be construed as thereafter waiving any such terms and conditions, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred.
SECTION EIGHTEEN.
ATTORNEY FEES
In the event that any action is filed in relation to this agreement, the unsuccessful party in the action shall pay to the successful party, in addition to all the sums that either party may be called on to pay, a reasonable sum for the successful party's attorney's fees.
SECTION NINETEEN.
PARAGRAPH HEADINGS
The titles to the paragraphs of this agreement are solely for the convenience of the parties and shall not be used to explain, modify, simplify, or aid in the interpretation of the provisions of this agreement.
In witness of the above, each party to this agreement has caused it to be executed as of the date set forth above.
EMPLOYEE PARK CITY GROUP, INC.
_______________________________ By: _________________________
its___________________________
|
LEASE
DATE: August 22, 2006
LESSOR: 3160 Pinebrook L.L.C.
Address:
Attention:
LESSEE: The Park City Group, Inc.
Address: 3160 Pinebrook Road
Park City, UT 84098
Attention: Randy Fields or Will Dunlavy
|
RECITALS:
A. Lessor is the true and lawful owner of the Premises, as described below, and has the right to lease the same in the manner set forth in this Lease.
B. Lessee desires to lease the Premises from Lessor and Lessor is willing to lease the Premises to Lessee on the terms and conditions set forth herein.
FOR VALUABLE CONSIDERATION, it is agreed as follows:
1. Description of Leased Premises. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the real property described on Exhibit "A" attached hereto, situated in Summit County, UT, together with all improvements presently located thereon and all easements, appurtenances and rights related thereto (the "Premises" or the "Leased Premises"); SUBJECT, HOWEVER, to current taxes and assessments, reservations in patents and all rights-of-way, easements, covenants, conditions, restrictions, obligations, liens, encumbrances, and liabilities of record as of the date hereof, and to all zoning and building code requirements and other governmental taws, rules, and regulations.
2. TERM .
(a) The term of this Lease shall be for a period of approximately THREE (3)
years, commencing on September 6, 2006. Lessor and Lessee shall mutually agree
in writing as to the rent commencement date which shall be no later than the
date on which the tenant improvements are complete and possession of the Leased
Premises is given to the Lessee , and the lease term shall continue until 11:59
p.m. on the day that is three years from the rent commencement date, subject to
the terms and conditions set forth in this Lease which may permit or provide for
an earlier termination.
(b) Not later than 30 months from the rent commencement date Lessee shall give written notice to Lessor, of its intent with regard to extending the term of the lease and its occupancy of the Leased Premises. In the event Lessee desires to extend the term, Lessor and Lessee shall enter into good faith negotiations regarding the terms and conditions for the extended term of the lease, including the length of the extended term and the amount of rent for the extended term. In the event Lessee indicates in its written notice that it does not intend to extend the term of the lease, Lessor shall have the right to begin marketing efforts to find a replacement tenant.
3. Securitv Deposit. Upon the execution of this Lease, Lessee shall
deposit with Lessor the 1st months rent and a security deposit of Fifteen
Thousand and No/100 dollars ($15,000) (the" Security Deposit"), as security for
the full performance by Lessee of its obligations hereunder. If Lessee defaults
under any provision hereof, Lessor shall be entitled, at its option, to apply or
retain all or any part of the Security Deposit for the payment of any rent or
other sum in default, any other amount which Lessor may spend or become
obligated to spend because of Lessee's default, or to compensate Lessor for any
other loss or damage which Lessor may suffer because of Lessee's default. If any
portion of the Security Deposit is so used or applied, Lessee shall, within five
(5) days after written demand therefor, deposit cash with Lessor in an amount
sufficient to restore the Security Deposit to its original amount. In no event
shall the Security Deposit be deemed or treated as a prepayment of any rental or
other amounts payable by Lessee hereunder, including without limitation, the
last monthly installment of rent. Lessor shall not be required to keep the
Security Deposit separate from its general funds, and Lessee shall not be
entitled to interest on the Security Deposit. If Lessee shall fully and
faithfully perform every provision of this Lease to be performed by it, upon
Lessee's vacation of the Premises and within thirty (30) days after the
expiration of the Lease, the Lessor shall return the Security Deposit, or any
remaining balance thereof, together with its written explanation of the
application of the funds, to the Lessee (or, at Lessor's option, to the last
Assignee of the Lessee's interest hereunder). In the event of termination of the
Lessor's interest in this Lease, the Lessor shall transfer the deposit to
Lessor's successor in interest, giving notice to the Lessee, and the Lessee
waives any claim to approve the transfer. The Lessee agrees that, upon a
transfer of the Security Deposit, the Lessor shall have no further liability to
return or account for it; provided, however, that Lessor may retain the Security
Deposit until such time as any amount due from Lessee in accordance with this
Lease has been determined and paid in full. Lessor's rights with respect to the
Security Deposit shall be in addition to and shall not preclude concurrent,
alternative or successive exercise of any other rights or remedies available to
Lessor.
4. Rental. Lessee shall pay to Lessor as rent during the term hereof, the following sums, payable monthly via automatic Bank transfer or wire transfer on the first day of each month during the term of this Lease without any prior notice, deduction or offset:
Year one rent is $137,250 in 12 equal payments of $11,437.50; Year two rent is $141,367.50 in 12 equal payments of $11,780.63; and Year three the rent is $145,608.53 in 12 equal payments of $12,134.04
5. Use of Leased Premises; Buildings and Improvements: Repairs.
(a) Use of the Leased Premises shall be only for the purpose of Corporate Office for The Park City Group, and other general business office uses, and for no other use or purpose. Lessee agrees not to commit or permit any waste of the Leased Premises. Lessee agrees to comply with all laws, ordinances, regulations, building permits, governmental stipulations and conditions, covenants, conditions and restrictions, public or private, affecting the Leased Premises and not to suffer or permit any act to be done in or about the Leased Premises in violation thereof.
(b) Subject to the provisions hereof, Lessor shall undertake and complete the tenant improvement work as specified on the attached Exhibit B. Lessor agrees to spend $150,000 and complete as many of the projects listed on Exhibit B as are possible with said $150,000. Lessee shall prioritize the list of tenant improvements and the work shall be completed based on such priorities. Lessee's rent obligations under this lease are subject to completion by Landlord of items 1- 14 listed on Exhibit B, notwithstanding the cost to complete those items and the $150,000 limit stated above. This Lease shall not be effective until items 1 - 14 are complete. Subject to and upon completion of the tenant improvements as outlined, Lessee accepts the Premises in their "as is" condition including any and all defects, latent or otherwise, existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business.
(c) Lessee shall not remove, demolish or impair the structural character of any existing improvement to the Leased Premises without Lessor's prior written consent, which consent may be given or withheld in Lessor's sale and absolute discretion. Lessee may, at its sole cost and expense, improve, construct, remodel, reconstruct or alter improvements, structures, and buildings on the Leased Premises; provided, however, all such work shall be done in compliance with and pursuant to plans, drawings and specifications first approved in writing by Lessor, which approval may be given or withheld in Lessor's sole and absolute discretion. Any material modifications to any such plans, drawings and specifications shall also require the prior written approval of Lessor, which approval may be given or withheld in Lessor's sale and absolute discretion. Lessee covenants that any such improvements, structures or buildings shall conform to all applicable building codes, zoning and other governmental regulations and restrictions and shall be constructed diligently, in a good and workmanlike manner, using only new, high quality materials, and in full compliance with all governmental laws, rules and regulations then relating hereto. Lessee agrees to indemnify and hold Lessor harmless for, from and against any and all claims for damages on the part of the owners, tenants, or occupants of adjacent lands or buildings arising from the uses of the Leased Premises by or activities of Lessee pursuant to this Paragraph, and Lessee agrees to take all necessary, prudent and proper measures to protect the land and improvements of such adjacent owners, tenants including occupants from injury of any nature arising from any such use or activity.
(d) The parties agree, and notice is hereby given, that Lessee is not the agent of Lessor for the construction, alteration or repair of any improvements on the Leased Premises, the same being done at the sole direction and expense of Lessee. All contractors, materialmen, mechanics, and laborers are hereby charged with notice that they must look only to Lessee for the payment of any charge for work done or material furnished on the Leased Premises during the term of this Lease. Lessee shall have no right, authority or power to bind Lessor or any interest of Lessor for the payment of any claim for labor or material, or for any charge or expense, incurred by Lessee as to improvements, alterations or repairs on or to the Leased Premises, and Lessee shall post notices on the Leased Premises during all construction work of any nature whatsoever that Lessor is not responsible for any material and labor used on the Leased Premises. Lessee shall hold harmless and indemnify Lessor and the leased Premises for, from and against any costs, expenses and liabilities from any mechanics', laborers' or materialmen's liens which may be filed against the Leased Premises during the term of this Lease.
(e) Lessee shall not use, generate, manufacture, store or dispose of, in, under or about the Leased Premises or transport to or from the Leased Premises any Hazardous Materials. For purposes of this Lease, "Hazardous Materials" shall include, but shall not be limited to (i) flammable, explosive or radioactive materials, hazardous wastes, toxic substances or related materials, (ii) all substances defined as "hazardous substances," "hazardous materials," or "toxic substances" in the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss.1901, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. ss.6901, et seq.; and (iii) all substances defined as "hazardous wastes" in United States or UTAH revised Statutes ss.49-201 (16). Lessee shall be solely responsible for, and shall indemnify and hold harmless Lessor and its successors and assigns for, from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, or disposal by Lessee of Hazardous Materials on, under or about the Leased Premises arising subsequent to the date on which this Lease was executed, including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repairs, cleanup or detoxification of the Leased Premises, and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Lessor in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees.
(f) Upon the termination of this Lease for any cause whatsoever, Lessee
shall immediately surrender peaceable possession of the Leased Premises, and all
buildings, improvements and fixtures then located thereon, all of which shall
thereupon be and become the property of Lessor (in good, clean, broom clean
condition), subject however, to the rights of removal as provided in Paragraph
20. If the Leased Premises are not surrendered at the end of the Lease term,
Lessee shall indemnify Lessor for, from and against any loss or liability
resulting from delay by Lessee in so surrendering the Premises, including
without limitation, any claims made by any succeeding tenant based on such
delay. If Lessee or any successor in interest of Lessee should remain in
possession of the Leased Premises after the expiration of the Lease term without
executing a new lease, then such holding over shall be construed as a tenancy
from month to month, subject to all the covenants, terms, provisions and
obligations of this Lease except for the provisions relating to the rental
amount payable hereunder, which shall be subject to an automatic increase of two
hundred percent (200%) over and above the amounts paid in the last full calendar
month of the Lease term, as rent, together with all other sums owing to Lessor
hereunder. Nothing contained herein shall be construed as Lessor's permission
for Lessee to hold over or as limiting Lessor's remedies against a holdover
lessee. All keys shall be returned to the Lessor upon surrender; failure of
Lessee to return all keys shall obligate Lessee to pay all necessary costs in
changing the locks pertaining to the Leased Premises.
(g) During the term of this Lease, Lessee, at Lessee's sole cost and expense, shall keep the structures and buildings constructed on the Leased Premises and any other improvements (including without limitation, landscaping, wiring, plumbing, plate glass, doors, windows, parking lot, fences, HV AC, interior painting) located from time to time thereon in an attractive, good and safe condition and state of repair (reasonable wear and tear excepted), and will hold Lessor free and harmless of and from any and all expense and liability therefor. Notwithstanding the foregoing, Landlord shall continue at all times to be responsible for the condition, maintenance and upkeep of the roof of the building and the maintenance of the exterior surfaces of the building.
6. Encumbering the Leased Premises. During the term of this Lease, Lessee shall not cause or permit any lien, claim, charge or encumbrance of any nature or description whatsoever to attach to or encumber the Leased Premises or any part thereof.
7. Indemnitv. Insurance.
(a) Lessee covenants and agrees to indemnify and save Lessor entirely harmless for, from and against each and every claim, demand, liability, loss, cost, damage and expense, including, without limitation, reasonable attorneys' fees and court costs, resulting from any cause on or about the leased Premises, including arising out of any accident or other occurrence causing injury to or death of persons or damage to property by reason of construction or maintenance of any improvements on the Leased Premises, of any additions, alterations or renovations thereto, or due to the condition of the Leased Premises, for which the Lessee is responsible, or the use or neglect thereof by Lessee or any agent, employee, invitee, contractor, or customer of Lessee, or any other person, or in connection with the maintenance or operation of Lessee's business on the Leased Premises or otherwise occurring upon the Leased Premises. Lessee further agrees to indemnify and save Lessor and its interests in the Leased Premises entirely harmless for, from and against all claims, demands, Liabilities, damages and penalties arising out of any failure of Lessee to comply with any of Lessee's obligations under this Lease, including without limitation reasonable attorneys' fees and court costs. This indemnity shall survive the expiration of this Lease or the earlier termination thereof.
(b) Lessee will, at all times during the term of this Lease and at the sole cost and expense of Lessee, keep the Leased Premises and all improvements, equipment, and fixtures on the Premises insured for the benefit of Lessor and Lessee, as co-insureds, to the extent of one hundred percent (100%) of the full replacement cost thereof against loss or damage from all-risk fire and other risks normally insured against in extended risk coverage including earthquake, flood and rental loss coverage at Lessor's option. All such policies shall provide that loss, if any, payable thereunder shall be payable to Lessor to be held in trust and disbursed for the restoration and repair of the Premises pursuant to Paragraph 10 hereof.
(c) Lessee, at the sole cost and expense of Lessee, shall at all times during the term of this Lease maintain in force an insurance policy or policies which will name Lessor and Lessee as insureds insuring against all liability resulting from injury or death occurring to persons in or about the Premises, the liability under such insurance to be not less than $3,000,000 for one person injured, $3,000,000 for anyone accident, and $2,000,000 for property damage. The original of such policy or policies shall remain in possession of Lessee; provided, however, that Lessor shall have the right to receive from Lessee, upon written demand, a duplicate policy or policies of any such insurance. Lessee shall also maintain and keep in force all employees' compensation insurance on its employees, if any, required under the applicable Workmen's Compensation Laws of the State of Utah.
(d) All insurance policies required under this Paragraph shall contain provisions to the effect that the insurance shall not be canceled or modified without ten (30) days' prior written notice to Lessor and that no modification shall be effective unless approved in writing by Lessor. All such policies shall be issued by a company or companies, rated "A" or better by Best's Insurance Guide, responsible and authorized to do business in the State of Utah, as Lessee shall determine, and shall be approved by Lessor, which approval shall not be unreasonably withheld.
(e) Lessee and Lessor each hereby release and relieve the other and the officers, employees, agents and representatives of the other, and waive their entire right of recovery against the other and the officers, employees, agents and representatives of the other, for loss or damage arising out of or incident to the perils insured against under this Paragraph 7(b), which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees, but only to the extent of insurance proceeds actually paid. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to and obtain waiver of subrogation agreements or endorsements from the insurance carrier or carriers concerning the foregoing mutual waiver of subrogation contained in this Lease.
8. Construction Work. All construction work on the Premises shall be done in accordance with Paragraph 5 hereof and under a written contract with a building contractor licensed under the laws of the State of Utah, which contractor shall be approved by Lessor. Lessor shall also have the right to approve all subcontractors performing any construction work on the Premises. All approvals required of Lessor under this Paragraph 8 shall not unreasonably be withheld so long as the contractors are bondable, have a lien-free record and experience with similar construction.
9. Condemnation.
(a) If the whole or any part of the Leased Premises shall be taken or condemned under the right of eminent domain (or agreement in lieu thereof) (hereinafter, a "taking"), and such taking shall render the portion remaining untenantable, then this Lease shall terminate at the option of either Lessor or Lessee by sending written notice thereof to the respective other party. In addition, if any portion of any improvements on the Premises shall be removed or taken in connection with any taking, Lessor shall have the option to terminate this Lease by sending written notice thereof to Lessee. In no event whatsoever shall Lessor be required to repair, replace or restore any structure, building or other improvement on the Premises as a result of any such taking. In the event of a partial taking which does not result in a termination of the lease, Lessee shall restore the remainder of the leased Premises to its prior condition. In the event of any termination of this Lease pursuant to this Paragraph, Lessee's rental obligations shall immediately cease, and except as otherwise expressly provided herein, all of the obligations of Lessor and Lessee shall terminate.
(b) All compensation or damages awarded for any taking shall belong to and be the property of Lessor, except for any specific award to Lessee for fixtures and improvements installed by Lessee at its sole cost and expense.
10. Damage. If any buildings, structures or other improvements upon the Leased Premises shall be destroyed or damaged in whole or in part by fire, or as a result directly or indirectly of war, or by act of God, or occurring by reason of any other cause whatsoever, so as to render the Premises untenantable, this Lease may be terminated at the election of either Lessor or Lessee, by sending written notice thereof to the respective other party. In no event whatsoever shall Lessor be required to repair, replace or restore any structure, building or other improvement on the Premises as a result of any such damage or destruction, and Lessor shall be entitled to retain any insurance proceeds received relating thereto. Upon any termination of this lease pursuant to this Paragraph, Lessee's rental obligations shall immediately cease, and except as otherwise expressly provided herein, all of the obligations of Lessor and Lessee shall terminate.
11. Utility Charges. Lessee shall pay or cause to be paid, when due and prior to delinquency, any and all charges for water, gas, electricity, telephone service, sewage service, garbage service and any other utilities used in or upon the Leased Premises during the term of this Lease including all hook-up and connection fees and agrees not to permit any charges of any kind to accumulate or become a lien against the Premises. Lessor shall not be liable for any failure or interruption of utility service and no such failure or interruption shall entitle Lessee to terminate the Lease, abate Lessee's obligations or pursue any remedies.
12. Taxes and Assessments.
(a) Lessee shall pay to Lessor, at the same time as any other rental payment is made to or for Lessor, an amount equal to the amount of all gross proceeds taxes, transaction privilege taxes, sales taxes, or like taxes now or hereafter levied or assessed by the United States, the State of Utah, any municipal corporation or political subdivision upon such rental, or the payment or receipt thereof, or which Lessor will be caused to pay as a result of the receipt thereof, except that Lessee shall not be obligated to pay to Lessor any amount on account of any income tax of Lessor.
(b) In addition to the monthly rent and all other sums payable pursuant hereto, Lessee shall pay to Lessor during the entire term of this Lease, as additional rental hereunder, all real estate taxes, assessments, and charges and other governmental levies and charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind, which are assessed or imposed upon the Leased Premises, or any part thereof, or which become payable during the term of this Lease. Such taxes shall further include, without limitation, Charges and assessments levied against the land improvements to the Leased Premises, fees or assessments for government services or levy of taxes, gross receipts tax or tax on rentals or amounts levied in lieu of taxes. Lessee's payment of taxes and assessments to Lessor pursuant to this Subparagraph 12(b) shall be made in equal monthly installments to Lessor at the same time, manner and location as the payment of monthly rental hereunder. Lessee's monthly payment shall equal one-twelfth (l/12th) of the estimated total annual taxes and assessments for the Leased Premises, as estimated by Lessor. If the amount paid by Lessee on a monthly basis for the Lease term as provided above is greater than the actual property taxes and assessments for the Leased Premises for such Lease term, then Lessor shall promptly reimburse the additional amount paid by Lessee upon the expiration of the Lease. If the amount paid by Lessee is less than the actual property taxes and assessments, then Lessee shall pay the additional amount owing to Lessor on or before fifteen (15) days after the receipt of a statement from Lessor setting forth the deficiency.
13. Lessor's Access to Premises. Lessor and its agents, at all reasonable times, shall have free and full access to the Premises for the purpose of examining or inspecting the condition thereof, for the purpose of determining if Lessee is performing the covenants and agreements of this Lease, and for the purpose of posting such reasonable notices as Lessor may desire to protect the rights of Lessor.
14. Assignment and Sublease.
(a) Lessee shall not have the right or power to assign all or part of this Lease without Lessor's prior written consent, which consent shall be at Lessor's sole and absolute discretion, and any attempted assignment shall be null and void, shall constitute an immediate default under this Lease, and shall, at Lessor's election, result in the immediate termination of this Lease.
(b) Lessee shall not have the right to sublet all or any portion or portions of the Leased Premises without first having obtained Lessor's written consent, which consent shall not be unreasonably withheld. Any such sublease shall not release Lessee from its obligation to perform all covenants herein contained.
15. No Abatement. No abatement, diminution or reduction of the rent or other charges payable by Lessee under this Lease shall be claimed by or allowed to Lessee for any reason.
16. Sale by Lessor. Lessor may sell, transfer, assign or otherwise dispose of the Premises, or this Lease, or any part thereof or interest therein, without the consent of Lessee. Upon any such sale, transfer, assignment or disposal of all of its interest in the Premises or this Lease, Lessor shall be automatically relieved of all obligations hereunder. This Lease shall not be affected by any such sale, transfer, assignment or disposal of Lessor's interest, and Lessee agrees to attorney to Lessor's purchaser or assignee. Lessee agrees to cooperate with Lessor in the marketing of the Premises to prospective purchasers, including without limitation, by allowing access to the Premises to any such prospective purchasers and Lessor's marketing agents or consultants. Lessee further agrees that Lessor shall be entitled to place a "For Sale" sign or signs on the Premises in such place or places as Lessor shall reasonably determine.
17. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Premises and to the lien therof and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. If any mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this Paragraph 17(b).
18. Estoppel Certificate.
(a) Lessee shall at any time upon ten (10) days' prior written notice
from Lessor execute, acknowledge and deliver to Lessor a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modifications and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any; (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor
hereunder, or specifying such defaults if any are claimed; (iii) acknowledging
that Lessee has unconditionally accepted the Premises, is in possession thereof,
and no defense to enforcement of the Lease exists; (iv) agreeing to provide any
Lessor mortgagee with the opportunity to cure defaults by the Lessor; and (v)
agreeing not to amend, cancel or assign the Lease without the prior written
content of any Lessor mortgagee. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrance of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification, except as may be represented by Lessor; (ii) that there are no uncured defaults in Lessor's performance; (iii) that not more than one month's rent has been paid in advance; (iv) that Lessee is in possession of the Premises; (v) that no defenses exist to the enforcement of the Lease; and (vi) that Lessee agrees to be bound by provisions (iv) and (v) in Paragraph 18(a) above.
19. Lessor's Right to Take Certain Actions. If Lessee fails to comply with any of the terms of this Lease, Lessor, in its sole judgment, but without any obligation to do so, may do any or all things required of Lessee by any of the provisions of this Lease and incur and pay expenses in connection therewith. Any amounts expended by Lessor pursuant to this Paragraph shall be immediately due and payable by Lessee to Lessor and shall bear interest at the rate of eighteen percent (18%) per annum until paid. Any action by Lessor hereunder shall not constitute a waiver of any default by Lessee and shall be in addition to any other right or remedy available to Lessor pursuant to this Lease or at law or in equity.
20. Removal of Personal Property and Lessee's Fixtures and Trade Fixtures. Upon any termination of this Lease, ownership and possession of all buildings and other permanent structures, if any, located upon the Premises as of such date shall pass to Lessor; provided, however, Lessee may, if not in default under any of the terms of this Lease and within a reasonable time after such termination, remove any and all personal property, including, but not limited to, furniture, equipment, and fixtures belonging to Lessee; provided, however, Lessee shall repair any damage to any improvements on the Premises caused by such removal. Upon any termination of this Lease, Lessee shall deliver to Lessor, for Lessor's use at no cost to Lessor, copies of all engineering, architectural and landscaping plans, all site plans, inspection reports, marketing reports, tests, feasibility reports, and other documents relating to the Premises.
21. Default. Upon the non-payment of the whole or any portion of the rentals hereby reserved, or any other sum or sums of money due to Lessor under the provisions hereof, or upon the non-performance by Lessee of any other covenant or condition herein set forth on the part of said Lessee to be kept and performed, Lessee shall be in default hereunder, provided, however, Lessor shall not be entitled to exercise its remedies for default unless Lessor shall have given Lessee written notice of the default and Lessee shall have failed to cure such default on or before five (5) days after Lessee receives such notice, if such default relates to the non-payment of money, or on or before thirty (30) days after Lessee receives such notice, for any default other than non-payment of money. Upon such default and the expiration of the respective above-referenced grace period, it shall be lawful for Lessor, at its option, to re-enter upon the Leased Premises and to again repossess and enjoy the same and all the improvements thereon free of any claims or interest of Lessee whatsoever, with or without terminating this Lease, at Lessor's sole election. In addition, upon such default, Lessor shall be entitled to avail itself of whatever remedies it may have at law or in equity for the collection of any unpaid rentals hereunder, past and future, or for any damages that it may have sustained by reason of the breach by Lessee of the terms and conditions hereof. No termination of this Lease by forfeiture or taking or recovering possession of the Leased Premises shall deprive Lessor of any other action, right, or remedy against Lessee. Any sum of money not paid within five (5) days after such sum shall become due shall bear interest from the due date until paid at the rate of eighteen percent (18%) per annum.
22. Waiver of Breach. No waiver by Lessor or Lessee of the breach of any provision of this Lease shall be construed as a waiver of any preceding or succeeding breach of the same or any other provision of this Lease, nor shall the acceptance of rent by Lessor during any period of time in which Lessee is in default in any respect other than payment of rent be deemed to be a waiver of such default.
23. Notices. Notices shall be in writing and shall be given by personal delivery or by deposit in the United States mail, certified mail, return receipt requested (which receipt shall be preserved as evidence of delivery), postage prepaid, addressed to Lessor and Lessee at the addresses set forth at the beginning of this Lease. The date notice is given shall be the date upon which the notice is delivered to such address. Notice shall be deemed to have been delivered upon the date on which the notice is actually received, whether notice is given by personal delivery or is sent through the United States mail. Either party may furnish to the other in writing a different mailing address and designate another individual upon whom all notices may be served as herein provided.
24. Attorneys' Fees. If any action is brought by any party to this Lease in respect of its rights under this Lease, the prevailing party shall be entitled to reasonable attorneys' fees and court costs as determined by the court. In the event that any person who shall not be a party to this Lease shall institute an action against Lessee in which Lessor shall be involuntarily and without cause joined as a party, Lessee shall reimburse Lessor for all attorneys' fees incurred by Lessor in connection therewith.
25. Severabilitv. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
26. Recording. Neither this Lease nor any memorandum of this Lease shall be recorded or filed without Lessor's prior written consent, which may be given or withheld by Lessor in its sole and absolute discretion.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies hereunder or at law or in equity.
28. Quiet Enjoyment. Conditioned upon Lessee paying the rent herein provided and performing and fulfilling all the covenants, agreements, conditions, and provisions herein to be kept, observed or performed by Lessee, Lessee may at all times during the term hereby granted, peaceably, quietly, and exclusively have, hold, and enjoy the Leased Premises.
29. Entire Agreement. This Lease sets forth all the promises, inducements, agreements, conditions, and understandings between Lessor and Lessee relative to the Leased Premises, and there are no promises, agreements, conditions, or understandings, either oral or written, express or implied, between them other than are set forth herein. No subsequent alteration, amendment, change, or addition to this Lease shall be binding upon Lessor or Lessee unless in writing and signed by each of them. Parole evidence shall never be admissible in any court, tribunal, arbitration or governmental agency to modify, amend or vary the terms of this Lease.
30. Construction. The titles which are used following the number of each paragraph are so used only for convenience in locating various provisions of this Lease and shall not be deemed to affect the interpretation or construction of such provisions. The parties acknowledge that each party and its counsel have reviewed and revised this Lease. This Lease shall not be construed for or against Lessor or Lessee.
31. Successors. Subject to the restrictions contained in Paragraph 14 above, this Lease and all of provisions hereof shall be binding upon and inure to the benefit of the successors and assigns of Lessor and Lessee.
32. Governing Law. The terms, conditions, covenants, and agreements herein contained shall be governed, construed, and controlled according to the laws of the State of Utah.
33. Broker's Commission. Lessee and Lessor represent and warrant to each other that there are no claims for brokerage commissions or finder's fees in connection with this Lease, other than the amount due to The Commercial West Real Estate Co. Park Cit, UT, which is the obligation of the Lessor. Each agrees to indemnify the other for, from and against all liabilities arising from any claims, including any attorneys' fees connected therewith, relating to claims arising out of the other's actions.
34. Time is of the Essence. Time is of the essence of this Lease and in the performance of all of the covenants and conditions hereof.
LESSOR:
By___________________________________________
Its ____________________________________
LESSEE:
By ___________________________________________
Its ______________________________________
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES
COMMON STOCK PURCHASE WARRANT
To Purchase 80,000 Shares of Common Stock of
Park City Group, Inc.
THIS COMMON STOCK PURCHASE WARRANT CERTIFIES that for good and valuable consideration, William D. Dunlavy (the "Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after June 30, 2006 (the "Initial Exercise Date") and on or prior to the close of business on June 30, 2011 (the "Termination Date") but not thereafter, to subscribe for and purchase, up to 80,000 shares (the "Warrant Shares") of Common Stock, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $3.25, subject to adjustment hereunder. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein.
1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws and Section 7 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by his duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.
2. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant.
(a) Except as provided in Section 4 of this Warrant, exercise of the purchase rights represented by this Warrant, in whole or in part, may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the
Company) and upon payment of the Exercise Price (as defined below) for the
number of Warrant Shares with respect to which this Warrant is then being
exercised, payable at the Holder's election (i) by certified or official bank
check or by wire transfer to an account designated by the Company, (ii) by
"cashless exercise" by surrender to the Company for cancellation of a portion of
this Warrant representing that number of unissued Warrant Shares which is equal
to the quotient obtained by dividing (A) the product obtained by multiplying the
Exercise Price by the number of Warrant Shares being purchased upon such
exercise by (B) the Per Share Market Value as of the date of such exercise, or
(iii) by a combination of the foregoing methods of payment selected by the
Holder. In any case where the consideration payable upon such exercise is being
paid in whole or in part pursuant to the provisions of clause (ii) of this
Section 3(a), such exercise shall be accompanied by written notice from the
Holder of this Warrant specifying the manner of payment thereof and containing a
calculation showing the number of Warrant Shares with respect to which rights
are being surrendered thereunder and the net number of shares to be issued after
giving effect to such surrender. "Per Share Market Value" means on any
particular date (A) the closing price per share of the Common Stock on such date
on the OTC Bulletin Board or another registered national stock exchange on which
the Common Stock is then listed, or if there is no such price on such date, then
the closing price on such exchange or quotation system on the date nearest
preceding such date, or (B) if the Common Stock is not then reported by the OTC
Bulletin Board or the Pink Sheets LLC (or any similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (C) if the Common Stock is not then publicly traded, the fair
market value of a share of Common Stock as determined by an Independent
Appraiser selected in good faith by the Holder; provided, however, that the
Company, after receipt of the determination by such Independent Appraiser, shall
have the right to select an additional Independent Appraiser, in which case, the
fair market value shall be equal to the average of the determinations by each
such Independent Appraiser; and provided, further that all determinations of the
Per Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period. The determination
of fair market value by an Independent Appraiser shall be based upon the fair
market value of the Company determined on a going concern basis as between a
willing buyer and a willing seller and taking into account all relevant factors
determinative of value, and shall be final and binding on all parties. In
determining the fair market value of any shares of Common Stock, no
consideration shall be given to any restrictions on transfer of the Common Stock
imposed by agreement or by Federal or state securities laws, or to the existence
or absence of, or any limitations on, voting rights. "Independent Appraiser"
means a nationally recognized or major regional investment banking firm or firm
of independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) that
is regularly engaged in the business of appraising the capital stock or assets
of corporations or other entities as going concerns, and which is not affiliated
with either the Company or the Holder.
(b) Upon payment of the Exercise Price pursuant to Section 3(a) of this Warrant, the Holder shall be entitled to receive a certificate for the number of Warrant Shares so purchased. Certificates for shares purchased hereunder shall be delivered to the Holder within five (5) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, by payment to the Company of the Exercise Price and all taxes
required to be paid by the Holder, if any, pursuant to Section 5 of this Warrant, prior to the issuance of such shares. "Trading Day" means (i) a day on which the Common Stock is traded on the OTC Bulletin Board, or (ii) if the Common Stock is not listed on the OTC Bulletin Board, a day on which the Common Stock is traded on any other registered national stock exchange, or (iii) if the Common Stock is not traded on the OTC Bulletin Board or any other registered national stock exchange, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (ii) of this Section 3(b), then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.
(c) If the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to Section
3(b) of this Warrant by the close of business on the fifth Trading Day after the
date of exercise, then the Holder will have the right to rescind such exercise.
In addition, if the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise by the
close of business on the fifth Trading Day after the date of exercise, and if
after such fifth Trading Day the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a "Buy-In"), then the Company shall
(i) pay in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed, and (ii) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery obligations
hereunder. For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of Warrant Shares with an aggregate sale price giving rise to such
purchase obligation of $10,000, under clause (i) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder
shall provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In, together with applicable confirmations and
other evidence reasonably requested by the Company. Nothing herein shall limit a
Holder's right to pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing Warrant Shares upon exercise of this Warrant as
required pursuant to the terms hereof.
(d) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
7. Transfer, Division and Combination.
(e) Subject to compliance with any applicable securities laws and the conditions set forth in Sections 1 and 7(e) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
(f) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.
(g) The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrant or Warrants under this
Section 7.
(h) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants.
(i) If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act.
8. No Rights as Shareholder until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company that are purchasable pursuant hereto immediately after such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event.
12. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets.
13. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall give notice thereof to the Holder, which notice shall state the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.
14. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at least 10 calendar days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 10 calendar days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d).
15. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
16. Timely Reports. The Company agrees to use its best efforts to file timely all reports required to be filed pursuant to Sections 13 or 15 of the Securities Exchange Act of 1934, as amended, and to provide such information as will permit the Holder to sell this Warrant or any Warrants Shares in accordance with Rule 144 under the Securities Act.
17. Miscellaneous.
(j) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
(k) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.
(l) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
(m) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement; provided upon any permitted assignment of this Warrant, the assignee shall promptly provide the Company with its contact information.
(n) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(o) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.
(p) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.
(q) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
(r) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(s) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.
Dated: as of June 30, 2006
Park City Group, Inc.
By:_________________________________ Name:
Title:
NOTICE OF EXERCISE
To: Park City Group, Inc.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of Park City Group Inc. pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 3(a), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 3(a).
(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following:
(4) Accredited Investor. The undersigned is an "accredited investor" as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[PURCHASER]
By: ______________________________
Name:
Title:
Dated: __________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information. Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is _____________________________________________________________.
Dated: ______________, _______
Holder's Signature:_____________________________
Holder's Address:_______________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
ACCORD AND SATISFACTION
This Accord and Satisfaction (the "Agreement") is entered into on the __ day of September, 2006 by and between William D. Dunlavy ("Will") and Park City Group, Inc. ("PCG").
RECITALS
Whereas, Will has an employment agreement (the Employment Agreement") with Cooper Fields, LLC dated July 1, 1999; and
Whereas, PCG is the successor in interest to Cooper Fields, LLC and its business, operations and obligations; and
Whereas, Will acknowledges that any obligations of Cooper Fields, LLC that may or may not continue as of the date hereof are the obligations of PCG and any satisfaction by PCG shall work as a satisfaction on behalf of Cooper Fields LLC.
AGREEMENT
Now therefore, in consideration of the mutual covenants and conditions contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. PCG hereby grants to Will a Common Stock Purchase Warrant to purchase up to 80,000 shares of common stock of PCG. The terms of the warrant are set forth in the form of warrant attached hereto as Exhibit A, the original executed copy of which shall be delivered to Will concurrent with the execution of the Agreement.
2. Will hereby releases and forever discharges and by these presents does, for himself, his heirs, executors, administrators and successors, remise, release acquit, satisfy and forever discharge PCG, its subsidiaries, affiliates and officers and directors, of and from all, and all manner of action and actions, cause and causes of action, suits, debts, dues, sums of money, accounts, covenants and contracts, promises, claims and demands whatsoever in law or in equity arising out of the Employment Agreement which he ever had, now has or which his heirs, executors or administrators, hereafter can, shall or may have, for upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this Agreement.
3. Nothing contained herein shall effect the terms and conditions of Will's employment with PCG as it currently exists other than whatever effect the Employment Agreement had.
In witness whereof, the parties hereto have caused this Accord and Satisfaction to be executed as of the date first above written.
Park City Group, Inc.
Exhibit
31.1
Park City Group, Inc.
Certification Of
Principal Executive And Principal Financial Officer
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I, Randall K. Fields, certify that:
| 1. | I have reviewed this annual report on Form 10-KSB for the period ended June 30, 2006 of Park City Group, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b. | Paragraph omitted pursuant to SEC release Nos. 33-8293 and 34-47986 |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: September 28, 2006
/s/ Randall K. Fields
Principal
Executive Officer, CEO
Exhibit 31.2
Park City Group, Inc.
& Subsidiaries
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
I, William Dunlavy, certify that:
| 1. | I have reviewed this annual report on Form 10-KSB for the period ended June 30, 2006 of Park City Group, Inc.; |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; |
| b. | Paragraph omitted pursuant to SEC release Nos. 33-8293 and 34-47986 |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: September 28, 2006
/s/ William Dunlavy
Principal Financial Officer, CFO
Exhibit 32.1
Park City Group, Inc.
& Subsidiaries
18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002
In connection with the annual Report of Park City Group, Inc. (the “Company”) on form 10-KSB for the year ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Randall K. Fields, Principal Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Dated: September 28, 2006
/s/ Randall K. Fields
Principal Executive Officer, CEO
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Exhibit 32.2
Park City Group, Inc.
& Subsidiaries
18 U.S.C. Section 1350, As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002
In connection with the annual Report of Park City Group, Inc. (the “Company”) on form 10-KSB for the year ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William Dunlavy, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Dated: September 28, 2006
/s/ William Dunlavy
Principal Financial Officer, CFO
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